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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).
Activities
Cost driver
Allocation Rate
Material handling
Number of parts
$2 per part
Assembly
Labor hours
$20 per hour
Inspection
Minutes at inspection station
$3 per minute
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
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