Question

Crane, 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 $72,750 were estimated. An analysis of estimated overhead costs reveals the following activities. Activities Cost Drivers Total Cost 1. Materials handling Number of requisitions $30,000 2. Machine setups Number of setups 23,750 3. Quality inspections Number of inspections 19,000 $72,750 The cost driver volume for each product was as follows. Cost Drivers Instruments Gauges Total Number of requisitions 375 625 1,000 Number of setups 175 300 475 Number of inspections 225 250 475

Answer 1

Requirement: Determine the overhead rate for each activity "Materials handling, Machine setups, Quality inspections"

Materials handling overhead rate = Total cost / Cost driver volume

Materials handling overhead rate = $30,000 / 1,000

Materials handling overhead rate = $30

Machine setups overhead rate = Total cost / Cost driver volume

Machine setups overhead rate = $23,750 / 475

Machine setups overhead rate = $50

Quality inspections overhead rate = Total cost / Cost driver volume

Quality inspections overhead rate = $19,000 / 475

Quality inspections overhead rate = $40