Alpha Company manufactures breadboxes and uses an activity-based costing system to allocate all manufacturing conversion costs. The following information is provided for the month of May: Activity Estd Indirect Activity Costs Allocation Base | Estimated Allocation Base Materials handling $ 3,500 Number of parts 5,000 parts Assembling 12,000 Number of parts 5,000 parts Packaging 5,750 | Number of bread boxes 1,250 bread boxes
Each breadbox consists of 4 parts. The direct materials cost per breadbox is $9.00
What is the total manufacturing cost per breadbox?
A. $12.40 B. $17.40 C. $24.00 D. $26.00 E. None
The Correct Answer and Explanation is :
To calculate the total manufacturing cost per breadbox, we must include the direct materials cost and the allocated activity costs based on activity-based costing (ABC). Let’s go step by step.
Step 1: Calculate Total Allocation Base for Each Activity
- Materials handling:
Allocation rate = Estimated cost / Allocation base = ( \frac{3500}{5000} = \$0.70 ) per part.
Each breadbox has 4 parts, so total parts for 1,250 breadboxes = ( 1,250 \times 4 = 5,000 ) parts. - Assembling:
Allocation rate = Estimated cost / Allocation base = ( \frac{12,000}{5000} = \$2.40 ) per part.
Total parts = 5,000 (same as above). - Packaging:
Allocation rate = Estimated cost / Allocation base = ( \frac{5750}{1250} = \$4.60 ) per breadbox.
Step 2: Compute Allocated Costs per Breadbox
- Materials handling cost per breadbox:
( 4 \, \text{parts per breadbox} \times 0.70 \, \text{(rate per part)} = \$2.80 ). - Assembling cost per breadbox:
( 4 \, \text{parts per breadbox} \times 2.40 \, \text{(rate per part)} = \$9.60 ). - Packaging cost per breadbox:
Direct allocation = ( 4.60 \, \text{(rate per breadbox)} ).
Step 3: Add Direct Material Costs
Direct material cost per breadbox = ( 9.00 ).
Step 4: Total Cost per Breadbox
( 2.80 \, \text{(materials handling)} + 9.60 \, \text{(assembling)} + 4.60 \, \text{(packaging)} + 9.00 \, \text{(direct materials)} = 26.00 ).
Final Answer: D. $26.00
Explanation:
Activity-based costing ensures accurate allocation by assigning indirect costs based on specific cost drivers (e.g., parts and breadboxes). In this case:
- The direct materials cost forms a substantial part of the total cost.
- Activity rates are multiplied by the relevant allocation base (number of parts or breadboxes) for precision.
- Adding these costs together gives a comprehensive view of the per-unit manufacturing cost.
Thus, the manufacturing cost per breadbox is $26.00.