Question

The Fallon Company manufactures a variety of handcrafted bed frames. The company’s manufacturing activities and related...

The Fallon Company manufactures a variety of handcrafted bed frames. The company’s manufacturing activities and related data for the current year follow.

Activity cost pool

Estimated cost

Cost driver used as allocation base

Estimated volume for cost driver

Materials handling

$400,000

Number of parts

800,000 parts

Cutting

1 200,000

Machine hours

40,000 hours

Assembly

3 000,000

Direct labour hours

150,000 hours

Wood staining

1 320,000

Number of frames stained

60,000 frames

Total cost

5,920,000

  1. Compute the ABC activity rate for each activity.
  2. Suppose that a single indirect cost rate based on Machine hours was used to allocate indirect costs, calculate the indirect cost rate?

Homework Answers

Answer #1

Answer-

FALLON COMPANY
Activity based costing method
Activity Rate
Cost to be allocated Estimated cost (a) Estimated cost driver (b) Activity rate (c=a/b)
$
Materials handling 400000 Number of parts 800000 $0.50 per part
Cutting 1200000 Machine hours 40000 $30 per machine hour
Assembly 3000000 Direct labor hours 150000 $20 per direct labor hour
Wood staining 1320000 Number of frames stained 60000 $22 per frame
Total 5920000

Answer- Indirect cost rate = Total overhead costs/ Total machine hours

=$5920000/40000 machine hours

= $148 per machine hour

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