Concept Introduction Activity Based Costing: It is a costing method in accounting in which a company (manufacturing company) identifies its manufacturing activities and assigns the indirect manufacturing costs (including the activity costs) to the production output. Manufacturing Overhead : Manufacturing overhead refers to indirect costs that are incurred in the factory, other than direct materials costs and direct labor costs. Some of the examples of manufacturing overhead are depreciation on manufacturing plant and equipment, property taxes on plant, plant janitor’s wages etc. Predetermined Overhead Allocation Rate: A predetermined overhead allocation rate is used to assign the indirect manufacturing overhead costs to the units of production. It is computed by dividing the estimated overhead cost by an estimated quantity of allocation base. Allocation Base: An allocation base is used to allocate the indirect overhead costs. For example: Direct labor hours, machine hours, direct labor cost etc. 1. To Compute: The predetermined overhead allocation rate for each activity.

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Chapter 24, Problem E24.16E

To determine

Concept Introduction

Activity Based Costing: It is a costing method in accounting in which a company (manufacturing company) identifies its manufacturing activities and assigns the indirect manufacturing costs (including the activity costs) to the production output.

Manufacturing Overhead: Manufacturing overhead refers to indirect costs that are incurred in the factory, other than direct materials costs and direct labor costs. Some of the examples of manufacturing overhead are depreciation on manufacturing plant and equipment, property taxes on plant, plant janitor’s wages etc.

Predetermined Overhead Allocation Rate: A predetermined overhead allocation rate is used to assign the indirect manufacturing overhead costs to the units of production. It is computed by dividing the estimated overhead cost by an estimated quantity of allocation base.

Allocation Base: An allocation base is used to allocate the indirect overhead costs. For example: Direct labor hours, machine hours, direct labor cost etc.

1.

To Compute: The predetermined overhead allocation rate for each activity.

To determine

2.

To Compute: The expected (or allocated) indirect manufacturing cost of each bumper.

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