Major instrument, inc. manufactures two products: missile range

E4-11 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 $89,500 were estimated. An analysis of estimated overhead costs reveals the following activities.

 

 

Activity

 

Cost Driver

 

Total Cost

1

Material 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 Driver

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 Major Instrument explaining the benefits of activity-based costing. (Enter your answer in the block below.)