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Several years after reengineering its production process, Zippy Corporation hired a new controller,Tammy English,

She developed an ABC system very similar to the one used by

ZippyZippy's

chief rival. Part of the reason

EnglishEnglish

developed the ABC system was because

ZippyZippy's

profits had been declining even though the company had shifted its product mix toward the product that had appeared most profitable under the old system. Before adopting the new ABC system, the company had used a plantwide overhead rate based on direct labor hours that was developed years ago.

For the upcoming year,

ZippyZippy's

budgeted ABC manufacturing overhead allocation rates are as follows:

Activity Cost

Activity . Allocation Base . Allocation Rate

Materials handling. . . . Number of parts $3.50per part

Machine setup. . . . . . .Number of setups $475.00 per setup

Insertion of parts. . . . .Number of parts $25.00 per part

Finishing. . . . . . . . . . . . Finishing direct labor hours $59.00 per hour

The number of parts is now a feasible allocation base because

ZippyZippy

recently installed a plantwide computer system.

ZippyZippy

produces two-wheel models: Standard and Deluxe. Budgeted data for the upcoming year are as follows:

Standard	Deluxe
Parts per wheel. . . . . . . . . . . . . . . . . . . .	6.0	8.0
Setups per 1,000 wheels. . . . . . . . . . . . . . .	10.0	10.0
Finishing direct labor hours per wheel. . . . .	2.0	3.0
Total direct labor hours per wheel. . . . . . .	2.9	3.8

The company's managers expect to produce1,000 units of each model during the year.

1.	Compute the total budgeted manufacturing overhead cost for the upcoming year.
2.	Compute the manufacturing overhead cost per wheel of each model using ABC.
3.	Compute the company's traditional plantwide overhead rate. Use this rate to determine the manufacturing overhead cost per wheel under the traditional system.

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