A make/buy (inhouse/outsource) decision is necessary for several steelcomponents in the new, heavy duty transmission gearbox on off-road recreation vehicles. For the Make alternative, accounting provided the project engineer, Geraldine, the following standard rates for her use in estimating indirect costs: Geraldine had intended to apply a single (blanket) rate per direct labor hour until accounting showed her the wide-ranging rates above and the bases and usage data as shown. Determine how the indirect cost rates were derived. MachineIndirect Cost RateVertical milling cutter$ 1.00 per labor dollarTurret lathe$25.00 per labor hourNumerical control drill press$ 0.20 per material dollar TABLE 11.6 Indirect Cost Bases and Activity, Example 11.8Budgeted Indirect to BeCharged for the YearIndirect CostExpectedAnnual ActivityMachineBasisVertical milling cutterDirect labor costs$100,000$100,000Turret latheDirect labor hours2000 hours$ 50,000Numerical control drill pressMaterials cost$250,000$ 50,000

Indirect costs are the costs which cannot be related directly to the production activities. Such…

Answered: Machine Indirect Cost Rate Vertical…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A make/buy (inhouse/outsource) decision is necessary for several steel
components in the new, heavy duty transmission gearbox on off-road recreation vehicles. For the Make alternative, accounting provided the project engineer, Geraldine, the following standard rates for her use in estimating indirect costs: Geraldine had intended to apply a single (blanket) rate per direct labor hour until accounting showed her the wide-ranging rates above and the bases and usage data as shown. Determine how the indirect cost rates were derived.

Machine
Indirect Cost Rate
Vertical milling cutter
$ 1.00 per labor dollar
Turret lathe
$25.00 per labor hour
Numerical control drill press
$ 0.20 per material dollar

TABLE 11.6 Indirect Cost Bases and Activity, Example 11.8
Budgeted Indirect to Be
Charged for the Year
Indirect Cost
Expected
Annual Activity
Machine
Basis
Vertical milling cutter
Direct labor costs
$100,000
$100,000
Turret lathe
Direct labor hours
2000 hours
$ 50,000
Numerical control drill press
Materials cost
$250,000
$ 50,000

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