## Related questions with answers

CarryALL, Inc., makes and sells small cargo trailers to individuals and small businesses. Since its opening in 1990, it has allocated indirect costs (IDC) to its three manufacturing plants based on direct materials cost per unit. Each plant builds different models and sizes. Because of advances in automation and materials, Judy, the CFO, plans to use build-time per unit as the new basis. Build-time is the average number of work-hours to complete a trailer. However, she initially wants to determine what the allocation would have been this year had the build-time basis been used prior to the incorporation of new technology and materials. The data shown below represents average costs and times. Use this data and the bases indicated to determine the allocation rates and IDC allocation of $1,000,000 for this year for the three bases.$

$\begin{array}{lcccc} \text { Plant } & \text { New York } & \text { Virginia } & \text { Tennessee } & \text { Total } \\ \hline \text { Direct material cost, } & 20,000 & 12,700 & 18,600 & 51,300 \\ \text { \$ per unit } & & & & \\ \text { Previous build-time } & 400 & 415 & 580 & 1395 \\ \text { per unit, work-hours } & & & & \\ \text { New build-time per } & 425 & 355 & 480 & 1260\\ \text { unit, work-hours } & & & & \\ \hline \end{array}$

$

Solution

Verified$\textbf{Basis: Direct material cost}$

ABC rate$= \frac{budget}{\text{total material cost}} = \frac{\$1,000,000}{\$51,300} = 19.493$

New York$= 19.493 \cdot \$20,000 = \$389,860$

Virginia$= 19.493 \cdot \$12,700 = \$247,561.1$

Tennesse$= 19.493 \cdot \$18,600 = \$362,569.8$

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