Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 39

Factory Direct manufactures and sells manufactured homes. Traditionally, it has distributed indirect costs to its three construction plants based on materials cost. Each plant builds different models and floor plans. Advances in weight and shape of plastic and wood composite components have decreased cost and time to produce a unit. Because of these advances, the CFO plans to use build-time per unit as the new basis. However, he initially wants to determine what the allocation would have been this year had build-time been the basis prior to incorporation of the new materials. The data shown represents average costs and times. Use this data and the three bases indicated to determine the allocation rates and indirect cost distribution of $900,000 for this year.