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.