Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall

Exercise 3

Activity-based costing Brooklyn Cycles produces custom bicycles and has used a traditional manufacturing overhead application rate based on direct labor hours. Currently, overhead is applied at the rate of $26/DLH. Brooklyn is now considering using activity-based driver rates to improve manufacturing overhead costing accuracy. Budgeted manufacturing overhead costs for expected driver activity are as follows:

Required:
Calculate manufacturing overhead rates that would be applied to bicycles produced using activity-based costing, and explain how Brooklyn Cycles could achieve improved costing accuracy.