Question

Morgana Company identifies three activities in its manufacturing process: machine setups, machining, and inspections. Estimated annual overhead cost for each activity is $157,500, $421,600, and $60,000, respectively. The cost driver for each activity and the estimated annual usage are number of setups 2,100, machine hours 24,800, and number of inspections 1,200.

Required:
Compute the overhead rate for each activity.

Answer 1

Answer and Explanation:

The computation of the overhead rate for each activity is shown below:

Machine setup is

= $157,500 ÷ 2,100

= $75 per machine setup

Machining is

= $421,600 ÷ 24,800

= $17 per machine hour

And, for Inspections, it is

= $60,000 ÷ 1,200

= $50 per inspection

In this way it should be calculated