Northern Lights Company manufactures a variety of small parts for the automotive industry. The company's manufacturing overhead cost budget for the current year is as follows:

These budgeted overhead costs total \($768,000\) , and the budgeted amount of direct-labor for the year is 40,000 hours.

Required:
1. Compute the predetermined overhead rate based on direct-labor hours.
2. Management has decided to implement an activity-based costing system. The cost drivers under consideration are the following:
• Production (in units)
• Raw-material cost 

• Factory space 

• Machine hours 

• Number of production runs 

• Number of shipments of finished goods 

• Number of shipments of raw materials 

• Number of different raw materials and parts used in a product 

• Engineering specifications and change orders 

• Divide Northern Lights' manufacturing-overhead costs into separate cost pools, and identify a cost driver for each cost pool.

3. For each overhead cost, indicate which of the five types of production activity (process time, inspection time, move time, waiting time, and storage time) is involved.
4. Which of the overhead costs are candidates for elimination as non-value-added costs?
5. How would activity accounting help Northern Lights' management reduce or eliminate some of the company's overhead costs? Be specific.
6. Suppose that the firm adopted a JIT production approach and purchased an FMS. Which overhead costs are likely to be treated as direct costs of an FMS cell?
7. For those costs that are not likely to be traceable to an FMS cell, how would you assign them to the company's products?
8. Suppose inspection of raw materials and receiving were combined to form an activity cost pool with the number of shipments of raw materials identified as the cost driver. Compute a pool rate for this cost pool, assuming that 400 shipments are anticipated.

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Electrical power $22,500 Purchasing 40,000 Supervision 88,000 Waste collection 2,000 Machine maintenance-labor 45,500 Custodial labor 20,000 Machine maintenance-materials 11,500 Telephone service 3,500 Natural gas (for heating) 17,500 Engineering design 34,000 Factory supplies 20,000 Inspection of raw materials 10,000 Setup labor 15,000 Receiving. 10,000 Lubricants 5,000 Inspection of finished goods 15,000 Property taxes 12,500 Packaging 31,000 Insurance. 17,500 Shipping 15,000 Depreciation on manufacturing equipment.. 52,500 Wages of parts clerks (find parts for Depreciation on trucks and forklifts 35,000 production departments). 30,000 Depreciation on material conveyors 7,500 Wages of material handlers. 35,000 Building depreciation Grinding wheels Drill bits 80,000 Fuel for trucks and forklifts 35,000 2,500 Depreciation on raw-material warehouse 25,000 1,000 Depreciation on finished-goods warehouse 29,000