what is the predetermined overhead rate if the traditional measure of machine hours 641326

(ABC; pricing) Perioto Inc. currently charges manufacturing overhead costs to products using machine hours. However, company management believes that the use of ABC would provide more realistic cost estimates and, in turn, give the company an edge in pricing over its competitors. Perioto’s accountant and production manager have pro vided the following budgeted information for 2011, given a budgeted capacity of 1,000,000machine hours:

Type of Manufacturing Cost Don't use plagiarized sources. Get Your Custom Essay on what is the predetermined overhead rate if the traditional measure of machine hours 641326 Get an essay WRITTEN FOR YOU, Plagiarism free, and by an EXPERT! Order Essay	Cost Amount
Electric power	$ 500,000
Work cells	3,000,000
Material handling	1,000,000
Quality control inspections	1,000,000
Machine setups	350,000
Total budgeted overhead costs	$5,850,000

Type of Manufacturing Cost	Activity Drivers
Electric power	200,000 kilowatt hours
Work cells	300,000 square feet
Material handling	200,000 material moves
Quality control inspections	50,000 inspections
Machine setups	25,000 setups

A national construction company approached Pete Lang, the VP of marketing, about a bid for 2,500 doors. Lang asked the cost accountant to prepare a cost estimate for producing the 2,500 doors; he received the following data:

Direct material cost	$ 50,000
Direct labor cost	$150,000
Machine hours	5,000
Direct labor hours	2,500
Electric power—kilowatt hours	500
Work cells—square feet	1,000
Number of material handling moves	20
Number of quality control inspections	15
Number of setups	6

a. What is the predetermined overhead rate if the traditional measure of machine hours is used?

b. What is the manufacturing cost per door as presently accounted for?

c. What is the manufacturing cost per door under the proposed ABC method?

d. If the two cost systems will result in different cost estimates, which cost accounting system is preferable as a pricing base and why?

e. If activity based management were implemented prior to an ABC system, which of the manufacturing overhead costs might be reduced or eliminated? Why?

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