Chapter 24, Problem E24.17E

To determine

Concept Introduction

Traditional Costing: It is a costing method in accounting in which a company and assigns the indirect manufacturing costs to the production output on the basis of a cost-driver like direct labor hours, or machine hours.

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 total estimated indirect manufacturing cost for 2016.

To determine

2.

(i)

To Compute: The estimated ABC indirect manufacturing cost per unit of standard model.

To determine

(ii)

To Compute: The estimated ABC indirect manufacturing cost per unit of deluxe model.

To determine

3.

(i)

To Compute: The predetermined overhead allocation rate based on direct labor hours for 2016.

To determine

(ii)

To Compute: The estimated (or allocated) indirect manufacturing cost per wheel rim for each model.