Air United, Inc. manufactures two products: missile range instruments and space pressure gauges. During April, 50 range instruments and 300 pressure gauges were produced, and overhead costs of $94,500 were estimated. An analysis of estimated overhead costs reveals the following activities.

The cost driver volume for each product was as follows.

Instructions
(a) Determine the overhead rate for each activity.
(b) Assign the manufacturing overhead costs for April to the two products using activity-based costing.
(c) Write a memorandum to the president of Air United explaining the benefits of activity-based costing.

Transcribed Image Text:

Activities Cost Drivers 1. Materials handling 2. Machine setups 3. Quality inspections Number of requisitions Number of setups Number of inspections Total Cost $40,000 21,500 3,000 $94,500 Instruments Gauges Total 600 ,000 500 600 Cost Drivers Number of requisitions Number of setups Number of inspections 400 200 200 300 400