Blade Breeze Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan has 20 separate parts. The direct materials cost is $70, and each ceiling fan requires 2.50 hours of machine time to manufacture. Additional information is as follows: Activity Allocation Base Predetermined Overhead Allocation Rate Materials handling Number of parts $ 0.08 Machining Machine hours 7.20 Assembling Number of parts 0.35 Packaging Number of finished units 2.80What is the cost of machining per ceiling fan

Question

Rebecca Baird

Business

10 May, 08:18

Blade Breeze Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan has 20 separate parts. The direct materials cost is $70, and each ceiling fan requires 2.50 hours of machine time to manufacture. Additional information is as follows: Activity Allocation Base Predetermined Overhead Allocation Rate Materials handling Number of parts $ 0.08 Machining Machine hours 7.20 Assembling Number of parts 0.35 Packaging Number of finished units 2.80What is the cost of machining per ceiling fan

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Andrea Ruiz · Answer 1

cost of machining per ceiling fan = $18 per unit

Explanation:

Activity-based costing is a form of absorption costing where overheads are charged to product using cost drivers. Under this method, overheads are first analyzed and categorized by the activities responsible for them and then charged to product based on the amount of benefits enjoyed using cost drivers.

For example, the machining overhead would charged to each ceiling fan using the machining overhead rate per machine hours.

Cost of machining per ceiling fan = Machining hours * overhead rate per machine hours

= 2.50 * $7.20 = $18 per unit

cost of machining per ceiling fan = $18 per unit