Dream Sewing Machine Company uses activity based costing to account for its
manufacturing process. Following are the four activities identified with the process and
their budgeted costs for the month of December:
Total Budgeted
Activity Cost Allocation Base
Materials handling $55,000 Number of parts
Machine setup 16,500 Number of setups
Assembling 23,000 Number of parts
Packaging 8,500 Number of finished units
Dream expects to produce 1,000 sewing machines in the month of December. The sewing
machines are expected to use 25,000 parts and require 15 setups.
a) Compute the cost allocation rate for each activity.
b) Compute the average manufacturing cost of each sewing machine assuming direct
materials are $175 per machine.