Southwest Auto Parts has a Seat Manufacturing Department

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    Southwest Auto Parts has a Seat Manufacturing Department that uses activity-based costing. SOUTHWESTs system has the following activities:
    Activity
    Allocation Base
    Cost Allocation Rate
    Purchasing
    Number of purchase orders
    $50.00 per purchase order
    Assembling
    Number of parts
    $0.50 per part
    Packaging
    Number of finished seats
    $1.00 per finished seat
    Each auto seat has 20 parts. Direct materials cost per seat is $1. Direct labor cost per seat is $10. Suppose Lexus RX300 has asked SOUTHWEST for a bid on 50000 built-in baby seats that would be installed as an option on some Lexus RX300. SOUTHWEST will use a total of 200 purchase orders if Lexus RX300 accepts SOUTHWESTs bid.
    Requirements
    1. Compute the total cost SOUTHWEST will incur to (a) purchase the needed materials and then (b) assemble and (c) package 50000 baby seats. Also compute the average cost per seat.
    2. For bidding SOUTHWEST adds a 30% markup to total cost. What total price will SOUTHWEST bid for the entire Lexus RX300 order?
    3. Suppose that instead of an ABC system SOUTHWEST has a traditional product costing system that allocates indirect costs other than direct materials and direct labor at the rate of $65 per direct labor hour. The baby-seat order will require 10000 direct labor hours. What price will SOUTHWEST bid using this systems total cost?
    4. Use your answers to Requirements 2 and 3 to explain how ABC can help SOUTHWEST make a better decision about the bid price to offer Lexus RX300.

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