Question

Morgana Company identifies three activities in its manufacturing process: machine setups, machining, and inspections. Estimated annual overhead cost for each activity is $202,800, $364,500, and $88,000, respectively. The cost driver for each activity and the estimated annual usage are number of setups 2,600, machine hours 24,300, and number of inspections 1,600. Compute the overhead rate for each activity.

Machine setups $ per setup
Machining $ per machine hour
Inspections $ per inspection

Answer 1

Answer and Explanation:

The computation of the overhead rate for each activity is as follows;

Overhead rate is

= Respective overhead cost ÷ Respective activity

For Machine setups

= ($202,800 ÷ 2,600 setups)

= $78 per setup

For Machining

= ($364,500 ÷ 24,300 machine hours)

= $15 per machine hour

For Inspection

= ($88,000 ÷ 1,600 inspections)

= $55 per inspection

In this way it is calculated