Part 1: Predetermined Overhead Allocation Rate for Each Activity

The formula to calculate the predetermined overhead allocation rate is:

$\text{Predetermined OH Rate} = \frac{\text{Estimated Overhead Costs}}{\text{Estimated Quantity of the Allocation Base}}$

Now, applying the data provided:

1. Materials Handling: $\frac{18,000}{2,500} = 7.20 \text{ per part}$

2. Machine Setup: $\frac{4,800}{10} = 480.00 \text{ per setup}$

3. Insertion of Parts: $\frac{40,000}{2,500} = 16.00 \text{ per part}$

4. Finishing: $\frac{84,000}{2,000} = 42.00 \text{ per finishing hour}$

Part 2: Manufacturing Overhead Cost Allocated to Job 86

Now, let's calculate the manufacturing overhead allocated to Job 86:

• Expected quantity for Job 86:
  • 120 bumpers
  • 1 setup
  • Finishing time (since we don't have this for Job 86, let's assume it follows the same pattern for the time required to finish each bumper. We can use the estimated hours per bumper from the total 2,000 hours for 500 bumpers, which gives 4 finishing hours per bumper).

Let's break down the allocation:

1. Materials Handling (per part): $\text{Parts used for Job 86} = 120 \text{ bumpers} \times \frac{2,500 \text{ parts}}{500 \text{ bumpers}} = 600 \text{ parts}$ $600 \text{ parts} \times 7.20 = 4,320 \text{ allocated to materials handling}$

2. Machine Setup (per setup): $\text{Setup used for Job 86} = 1 \text{ setup}$ $1 \text{ setup} \times 480.00 = 480.00 \text{ allocated to machine setup}$

3. Insertion of Parts (per part): $\text{Parts used for Job 86} = 600 \text{ parts}$ $600 \text{ parts} \times 16.00 = 9,600 \text{ allocated to insertion of parts}$

4. Finishing (per finishing hour): $\text{Finishing time for Job 86} = 120 \text{ bumpers} \times 4 \text{ hours per bumper} = 480 \text{ hours}$ $480 \text{ hours} \times 42.00 = 20,160 \text{ allocated to finishing}$

Total Manufacturing Overhead for Job 86:

$\text{Total Manufacturing OH Cost} = 4,320 + 480 + 9,600 + 20,160 = 34,560$

Summary for Job 86:

• Materials Handling: $4,320.00
• Machine Setup: $480.00
• Insertion of Parts: $9,600.00
• Finishing: $20,160.00
• Total Manufacturing OH Cost: $34,560.00

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Would you like further details on the process or additional questions related to this scenario?

Here are some additional questions for you:

1. How does activity-based costing improve cost accuracy compared to traditional costing methods?
2. Why is it important to allocate overhead costs to individual jobs?
3. What happens to the allocation rate if production increases or decreases?
4. How would you calculate the total cost of Job 86 if there were additional direct costs involved?
5. How can you optimize activity-based costing for future budget estimates?

Tip: When calculating overhead costs, it's crucial to regularly review and update the allocation bases to reflect any changes in production activities or cost drivers.