Northstar Company uses ABC to account for its chrome wheel manufacturing process. Company managers have identified four manufacturing activities that incur manufacturing overhead costs: materials handling, machine setup, insertion of parts and finishing.
The budgeted activity costs for the upcoming year and their allocation bases are as follows:
Activity Total Budgeted Allocation Base
Manufacturing
Overhead Cost
Materials handling $12,000 Number of parts
Machine setup 3,400 Number of setups
Insertion of parts 48,000 Number of parts
Finishing 80,000 Finishing direct labor hours
Total $143,400
Northstar expects to produce 1,000 chrome wheels during the year.
The wheels are expected to use 3,000 parts, require 10 setups and consume 2,000 hours of finishing time.
Job 420 used 150 parts, required 2 setups and consumed 100 finishing hours.
Job 510 used 500 parts, required 4 setups and consumed 310 finishing hours.
Required:
1. Compute the cost allocation rate for each activity.
2. Compute the manufacturing overhead cost that should be assigned to Job 420.
3. Compute the manufacturing overhead cost that should be assigned to Job 510.

Instructions are below.

Explanation:

First, we need to calculate the predetermined overhead rate for each activity:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Materials handling= 12,000/3,000= $4 per part

Machine setup= 3,400/10= $340 per setup

Insertion of parts= 48,000/3,000= $16 per part

Finishing= 80,000/2,000= $40 per finishing direct labor hour

Job 420 used 150 parts, required 2 setups and consumed 100 finishing hours.

Job 510 used 500 parts, required 4 setups and consumed 310 finishing hours.

To allocate costs, we need to use the following formula:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Job 420:

Materials handling= 4*150= $600

Machine setup= 340*2= $680

Insertion of parts= 16*150= $2,400

Finishing= 40*100= $4,000

Total allocated cost= $7,680

Job 510:

Materials handling= 4*500= $2,000

Machine setup= 340*4= $1,360

Insertion of parts= 16*500= $8,000

Finishing= 40*310= $12,400

Total allocated cost= $23,760

answer; (15,000)workers each

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