Reference no: EM133326094

Assignment: Bridgewater Toys Ltd. manufactures skateboards, boogie boards and scooters. Bridgewater has always allocated the indirect manufacturing overhead based on direct labour hours at a rate of $25 per hour. The plant manager believes this is not accurate and wants to change to a more accurate method of cost allocation. The accounting department provided the following analysis of the relationships between production activities and manufacturing overhead:

Activity                         Cost driver         Allocation rate

Materials handling         number of parts        $0.25 per part

Assembly                      machine hours          $4.50 per hour

Packaging                     labour hours              $4.00 per hour

A typical batch of 100 skateboards requires 1200 parts, 17 direct labour hours and 8 hours of machine time.

Questions:

What would be the total indirect manufacturing costs allocated to each skateboard using their normal overhead allocation method?

What would be the total indirect manufacturing costs allocated to each skateboard using an Activity Based Costing method?

Describe what types of organizations would likely be best suited to the use of ABC? Give an example.