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.)
TUTORIAL
PREVIEW
(a)
Determine the overhead rate for each activity.
|
Activity
Cost Pools
|
Estimated
Overhead |
÷
|
Expected
Use of Cost Drivers per Activity
|
=
|
Activity-based
Overhead Rates |
|
Materials handling
|
$40,000
|
÷
|
1,000
|
=
|
$40
|
|
Machine setups
|
$27,500
|
÷
|
500
|
=
|
$55
|
File name: E4-11 Major Instrument.xls File type: xls PRICE: $6
