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 $94,500 were estimated. An analysis of estimated overhead costs reveals the following activities.
|
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|
Cost Drivers |
Total Cost |
|
1. Materials 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 Drivers |
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.
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