Question

2. Kumquat Toys Ltd. manufactures skateboards, boogie boards and scooters. Kumquat has
always allocated the indirect manufacturing overhead based on direct labour hours at a
rate of $250 per hour. The plant manager believes thai si not accurate and wants to
change to a more accurate method of cost allocation. The accounting department
provided the following analysis of the relationshps between production activities and
manufacturing overhead:
Activity Cost driver Allocation rate
Materials handling number of parts $2.50 per part
Assembly machine hours $45 per hour
Packaging labour hours $4.00 per hour
Assuming that a batch of 100 skareboards requires 1200 parts, 21 direct labour hours and 5
hours of machine time. What is the total indirect manufacturing costs allocated to each
skateboard using activity-based costing?
a) $5.59
b) $33.09
c) $50.475

d) $51.50

Answer 1

Answer : B) $ 33.09

OH allocated = Activy #rate 3000 Activity Rate Activity Materila Handling 2.50 1200 Assembly 45.00 Packaging 4.00 21 Total Manufactruing overhead Units Produced Answer: Cost allocated t Each Skateboard = 3309/100 225 84 3309 100 33.09