Question

Bark Manufacturing has three activities in its manufacturing process: machine setups, machining, and inspections. Estimated annual overhead cost for each activity is $80,000, $162,500, and $28,000, respectively. The expected annual use in each department is 1,000 setups, 12,500 machine hours, and 875 inspections.

Compute the overhead rate for each activity.

Answer 1

For Machine Setup:

Overhead=$80 per setup

For Machining:

Overhead=$13 per machine hours

For inspections:

Overhead=$32 per inspections

Step-by-step explanation:

Given Data:

Overhead cost for machine setups=$80,000

Overhead cost for machining=$162,500

Overhead cost for inspections=$28,000

Expected annual use in machine setups=1,000 setups

Expected annual use in machining=12,500 machine hours

Expected annual use in inspections=875 inspections.

Required:

Overhead rate for each activity=?

Solution:

For Machine Setup:

Overhead=
`(Overhead\ Cost)/(Annual\ use)`

Overhead=
`(\$80,000)/(1000)`

Overhead=$80 per setup

For Machining:

Overhead=
`(Overhead\ Cost)/(Annual\ use)`

Overhead=
`(\$162,500)/(12,500)`

Overhead=$13 per machine hours

For inspections:

Overhead=
`(Overhead\ Cost)/(Annual\ use)`

Overhead=
`(\$28,000)/(875)`

Overhead=$32 per inspections