Nichols Inc. manufactures remote controls. Currently the company uses a plant-wide rate for allocating manufacturing overhead. The plant manager is considering switching-over to ABC costing system and has asked the accounting department to identify the primary production activities and their cost drivers which are as follows:
| Activities | Cost driver | Allocation Rate |
| Material handling | Number of parts | $2 per part |
| Assembly | Labor hours | $10 per hour |
| Inspection | Time at inspection station | $20 per minute |
The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $600 per labor hour.
What are the indirect manufacturing costs per remote control assuming an activity-based-costing method is used and a batch of 100 remote controls are produced? The batch requires 460 parts, 5 direct manufacturing labor hours, and 18 minutes of inspection time.
◦ $6.00 per remote control
◦ $13.30 per remote control
◦ $32.00 per remote control
◦ $1,330.00 per remote control
Rate enhancement by entropy reduction
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Morris and Company, Sussex Rush-Seated Chairs.
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