Acme Manufacturing Company of Portland, Oregon has a Research & Development department that currently provides services to in-house manufacturing departments. Other manufacuturers have expressed interested in using Acmes R&D department for special projects. Management has decided to conduct an activity-based costing system in order to determine charges for both outside and in-house users of the departments services. R&D activities fall into four pools with the following annual costs: Market Analysis 1,050,000 Product Design 2,350,000 Product Development 3,600,000 Prototype Testing 1,400,000 Activity analysis determines that the appropriate cost drivers and their usage for the four activities are: ActivitiesCost DriversTotal Estimated Drivers Market AnalysisHours of analysis1500 hours Product DesignNumber of designs2500 designs Product DevelopmentNumber of products90 products Prototype TestingNumber of tests500 tests a) Compute the activity-based overhead rate for each pool. Market Analysis Product Design Product Development Prototype Testing b) How much cost would be charged to an in-house manufacturing department that consumed 1,800 hours of market analysis time, was provided 280 designs relating to 10 products and requested 92 engineering tests? Market Analysis Product Design Product Development Prototype Testing Total c) How much cost would serve as the basis for for pricing an R&D bid with an outside company on a contract that would consume 800 hours of analysis time, require 178 designs relating to 3 products, and result in 70 engineering tests? Market Analysis Product Design Product Development Prototype Testing Total d) What is the benefit to Acme Manufacturing of applying activity-based costing to its R&D activity for both in-house and outside charging purposes?
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