Question

Brief Exercise 4-5 Morgana Company identifies three activities in its manufacturing process: machine setups, machining, and inspections. Estimated annual overhead cost for each activity is $140,000, $240,000, and $54,000, respectively. The cost driver for each activity and the estimated annual usage are number of setups 2,000, machine hours 24,000, and number of inspections 1,200. Compute the overhead rate for each activity.

Answer 1

Instructions are listed below.

Step-by-step explanation:

Giving the following information:

The company identifies three activities in its manufacturing process: machine setups, machining, and inspections.

Machine setups:

Estimated annual overhead= $140,000

Cost driver= machine setups

Activity= 2,000 machine setups

Machining:

Estimated annual overhead= $240,000

Cost driver= machine hours

Activity= 24,000 machine hours

Insections:

Estimated annual overhead= $54,000

Cost driver= number of inspections

Activity= 1,200 inspections

To calculate the estimated manufacturing overhead rate we need to use the following formula:

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

Machine setup:

Estimated manufacturing overhead rate= 140,000/2,000= $70 per machine setup

Machining:

Estimated manufacturing overhead rate= 240,000/24,000= $10 per machine hour

Inspection:

Estimated manufacturing overhead rate= 54,000/1,200= $45 per inspection