Question

Air United, Inc. manufactures two products: missile range instruments and space pressure gauges. During April, 51 range instruments and 305 pressure gauges were produced, and overhead costs of $85,890 were estimated. An analysis of estimated overhead costs reveals the following activities. Cost Drivers Activities Total Cost Materials handling Number of requisitions 1. $37,620 Number of setups Machine setups 2. 26,950 Number of inspections 3. Quality inspections 21,320 $85,890 The cost driver volume for each product was as follows Cost Drivers Instruments Gauges Total Number of requisitions 385 660 1,045 Number of setups 175 315 490 Number of inspections 275 245 520 Your answer is correct. Determine the overhead rate for each activity. Overhead Rate Materials handling 36 Machine setups 55 Quality inspections $ 41

Answer 1

Solution

	Instruments	Gauges
Overhead allocated	$            34,760	$         51,130
Overhead cost per unit	$ 681.57	$               167.64

Working

Cost assigned to Instruments
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Material handling cost	$                     36.00	385.00	$         13,860.00
Printing	$                     55.00	175.00	$           9,625.00
Product design	$                     41.00	275.00	$         11,275.00
Total Overheads assigned			$         34,760.00
Production			51.00
Overhead cost per unit			$ 681.57

.

Cost assigned to Gauges
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Material handling cost	$                     36.00	660	$         23,760.00
Printing	$                     55.00	315	$         17,325.00
Product design	$                     41.00	245	$         10,045.00
Total Overheads assigned			$         51,130.00
Production			305.00
Overhead cost per unit			$              167.64