Exercise 4-9 Air United, Inc. manufactures two products: missile range instrumen
ID: 2401896 • Letter: E
Question
Exercise 4-9 Air United, Inc. manufactures two products: missile range instruments and space pressure gauges. During April, 49 range instruments and 302 pressure gauges were produced, and overhead costs of $87,985 were estimated. An analysis of estimated overhead costs reveals the following activities Activities Cost Drivers Total Cost 1. Materials handling 2. Machine setups 3. Quality inspections Number of requisitions Number of setups Number of inspections $37,925 28,500 21,560 $87,985 The cost driver volume for each product was as follow:s Cost Drivers InstrumentS Gauges Total Number of requisitions Number of setups Number of inspections 415 195 250 610 1,025 280 240 475 490 Determine the overhead rate for each activity Overhead Rate Materials handling Machine setups Quality inspections Assign the manufacturing overhead costs for April to the two products using activity-based costing. (Round per unit answers to 2 decimal places, e.g. 12.25.) Instruments Gauges Total cost assigned Overhead cost per UnitExplanation / Answer
Requirement – 1, Overhead rate for each activity.
Overhead rate
Materials Handling
$37
Machine Setup
$60
Quality Inspections
$44
Materials Handling : $37,925 / 1,025 = $37
Machine Setup : $28,500 / 475 = $60
Quality Inspections : $21,560 / 490 = $44
Requirement – 2, Total cost assigned and overhead cost per unit
Instruments
Gauges
Total cost assigned
$38,055
$49,930
Overhead cost per unit
$776.63 per unit
$165.33 per unit
Total cost assigned - Instruments
Requisition : 415 x $37 = 15,355
Setups : 195 x $60 = 11,700
Inspection: 250 x $44 = 11,000
Total cost = 15,355 + 11,700 + 11,000 = $38,055
Total cost assigned - Gauges
Requisition : 610 x $37 = 22570
Setups : 280 x $60 = 16800
Inspection: 240 x $44 = 10560
Total cost = 22570 + 16800 + 10560 = 49,930
Overhead cost per unit – Instruments
= $38,055 / 49 Instruments
= $776.63 per unit
Overhead cost per unit – Gauge
=$49,930 / 302 Gauges
= $165.33 per unit
Overhead rate
Materials Handling
$37
Machine Setup
$60
Quality Inspections
$44
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