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Activity-based costing Brooklyn Cycles produces custom bicycles and has used a traditional manufacturing overhead application rate based on direct labor hours. Currently, overhead is applied at the rate of $26/DLH. Brooklyn is now considering using activity-based driver rates to improve manufacturing overhead costing accu- racy. Budgeted manufacturing overhead costs for expected driver activity are:

Machining time ...................

Budgeted Cost

$250,000

Budgeted Activity

10,000 hours

Direct labor time .................

$280,000

20,000 hours

Inspection time ...................

$ 32,000

4,000 hours

Required:

Calculate manufacturing overhead rates that would be applied to bicycles produced using activity-based costing, and explain how Brooklyn Cycles could achieve improved costing accuracy.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91881487

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