Question - Dillon Corporation manufactures computer monitors. The company uses a job order costing system, using a plant-wide rate for allocating overhead costs. The current cost method allocates overhead on the basis of direct manufacturing labor hours, using a rate of $100 per labor hour. The plant manager is considering switching over to an activity-based costing system and identifies the following production activities and their cost drivers (these activities are performed for a batch of 99 monitors).
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Activities
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Cost driver
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Allocation Rate
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Material handling
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Number of parts
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$2 per part
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Assembly
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Labor hours
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$20 per hour
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Inspection
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Minutes at inspection station
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$3 per minute
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What are the overhead costs per one unit of monitors if the activity-based costing system is used and a batch of 99 monitors are produced? The batch requires 400 parts, 8 direct manufacturing labor hours, and 10 minutes of inspection time.
$8 per monitor
$13 per monitor
$10 per monitor
$12 per monitor