Question

Air United, Inc. manufactures two products: missile range instruments and space pressure gauges. During April, 50 range instruments and 200 pressure gauges were produced, and overhead costs of $97,045 were estimated. An analysis of estimated overhead costs reveals the following activities.

Activities Cost Drivers Total Cost
1. Materials handling Number of requisitions $40,000
2. Machine setups Number of setups 21,500
3. Quality inspections Number of inspections 33,000
$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

Required:
a. Determine the overhead rate for each activity.
b. Assign the manufacturing overhead costs for April to the two products, using activity-based costing.

Answer 1

Results are below.

Step-by-step explanation:

First, we need to calculate the activities predetermined overhead rate:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Materials handling= 40,000 / 1,000= $40 per requisition

Machine setups= 21,500 / 500= $43 per setup

Quality inspections= 33,000 / 600= $55 per inspection

Now, we can allocate overhead costs to each product:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Instruments:

Materials handling= 40*400= $16,000

Machine setups= 43*200= $8,600

Quality inspections= 55*200= $11,000

Total overhead= $35,600

Gauges:

Materials handling= 40*600= $24,000

Machine setups= 43*300= $12,900

Quality inspections= 55*400= $22,000

Total overhead= $58,900