Waiting for answer This question has not been answered yet. You can hire a professional tutor to get the answer.
Accounting question
Question 3
Elkin Company manufactures wheel rims. The controller budgeted ABC allocation rates for 2010. Elkin
produces two wheel rim models: standard and deluxe. Budgeted data for 2010 are as follows:
Cost
Activity
Allocation Base
Allocation Rate
Materials handling
Number of parts
$5.00
per part
Machine setup
Number of setups
600.00
per setup
Insertion of parts
Number of parts
22.00
per part
Finishing
Finishing direct labor hours
60.00
per hour
Budgeted Data - 2010
Standard
Deluxe
Parts per rim
3.0
7.0
Setups per 1,000 rims
17.0
17.0
Finishing direct labor hours per rim
2.0
2.5
Total direct labor hours per rim
3.0
7.0
In 2011, Elkin's managers used the same indirect manufacturing costs per wheel rim that they computed in 2010. In addition to the unit indirect manufacturing costs, the following data are budgeted for the company's standard and deluxe models for 2011.
Standard
Deluxe
Sales price
800.00
1,040.00
Direct materials
31.00
47.00
Direct labor
45.00
54.00
Quantity of
Cost
Allocated activity
allocation
allocation
cost per rim
ABC cost per unit:
base used
×
rate
=
(Deluxe)
Materials handling
7.0
×
$5.00
=
$35.00
Machine setups
0.017
×
$600.00
=
10.20
Insertion of parts
7.0
×
$22.00
=
154.00
Finishing direct labor hours
2.5
×
$60.00
=
150.00
Total
$349.20
Controller Milton Bender is surprised by the increase in cost of the deluxe model under ABC. He had a market research study conducted.
Market research shows that for the deluxe rim to provide a reasonable profit, Elkin
will have to meet a target manufacturing cost of $450 per rim. A value engineering study by
Elkin's employees suggests that modifications to the finishing process could cut finishing cost from
$60 to $50 per hour and reduce the finishing direct labor hours per deluxe rim from 2.5 hours to
2.0 hours. Direct materials would remain unchanged at $47 per rim, as would direct labor at
$54 per rim. The materials handling, machine setup, and insertion of parts activity costs also would remain the same.
Requirement 1. First calculate the revised finishing activity cost per rim.
Finishing activity cost per rim
per rim
