Major Instrument, 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.

Activities Cost Drivers Total Cost 1 Materials handling Number of requisitions $40,000 2 Machine setups Number of setups 27,500 3 Quality inspections Number of inspections 27,000

$94,500 The cost driver volume for each product was as follows.

Cost Drivers Instruments Gauges Total Number of requisitions 400 600 1,000 Number of setups 200 300 500 Number of inspections 200 400 600 Instructions

(a) Determine the overhead rate for each activity.

(b) Assign the manufacturing overhead costs for April to the two products using activitybased costing.

(c) Write a memorandum to the president of Major Instrument explaining the benefi ts of activity-based costing.

AppendixLO1