XAG-B company is reviewing the behavior of its various activities. XAG is currently the company uses a plant-wide rate for allocating manufacturing overhead. The plant manager believes it is time to refine the method of cost allocation and has the accounting department identify the primary production activities and their cost drivers:
Activities Cost driver Allocation Rate
Material handling Number of parts $2 per part
Assembly Labor hours $20 per hour
Inspection Time at inspection station $3 per minute
The current traditional cost method allocates overhead based on direct manufacturing labour hours using a rate of $200 per labour hour.
What are the indirect manufacturing costs per remote control assuming an activity-based-costing method is used and a batch of 50 remote controls are produced? The batch requires 100 parts, 6 direct manufacturing labour hours, and 2.5 minutes of inspection time.