Question
Compute overhead rates and assign overhead using ABC . (LO 2, 3), AP Air United, Inc. manufactures two products: missile range instruments and space pressure
Compute overhead rates and assign overhead using ABC.
(LO 2, 3), AP 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.
Activities | Cost Drivers | Total Cost |
---|---|---|
1. Materials handling | Number of requisitions | $40,000 |
2. Machine setups | Number of setups | 21,500 |
3. Quality inspections | Number of inspections | 33,000 |
$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 activity-based costing.
c. Write a memorandum to the president of Air United explaining the benefits of activity-based costing.
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