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 | $5 per part |
| Assembly | Labor hours | $20 per hour |
| Inspection | Time at inspection station | $10 per minute |
The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $20 per labor hour.
What are the indirect manufacturing costs per remote control assuming an activity-based-costing method is used and a batch of 10 remote controls are produced? The batch requires 100 parts, 5 direct manufacturing labor hours, and 3 minutes of inspection time.
◦ $2.00 per remote control
◦ $63.00 per remote control
◦ $35.00 per remote control
◦ $630.00 per remote control
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Christian Gladu, The Bungalow Company, The Birch, North Town Woods, Bainbridge