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E4-11 Major Instrument, Inc. manufactures two products: missile range instruments and space pressure gauges. During April, 50 range instruments and 300 pressure gauges were produced, and overhead costs of $89,500 were estimated. An analysis of estimated overhead costs reveals the following activities.
|
Activity |
Cost Driver |
Total Cost |
|||
|
1 |
Material handling |
Number of requisitions |
$40,000 |
||
|
2 |
Machine setups |
Number of setups |
$27,500 |
||
|
3 |
Quality inspections |
Number of inspections |
$27,000 |
||
|
$94,500 |
The cost driver volume for each product was as follows.
|
Cost Driver |
Instruments |
Gauges |
Total |
|
Number of requisitions |
400 |
600 |
1,000 |
|
Number of setups |
200 |
300 |
500 |
|
Number of inspections |
200 |
400 |
600 |
Instructions
(a) Determine the overhead rate for each activity.
(b) Assign the manufacturing overhead costs for April to the two products using activity-based costing.
(c) Write a memorandum to the president of Major Instrument explaining the benefits of activity-based costing. (Enter your answer in the block below.)
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