7. Plum Tired manufactures tires for dune buggies and has two different products

Question

7. Plum Tired manufactures tires for dune buggies and has two different products, nubby tires and smooth tires. The company produces 5,000 nubby tires and 10,000 smooth tires each year and incurs $171,000 of overhead costs. The following
information is available:


Activity Total Cost Cost Driver
Materials handling $60,000 Number of requisitions
Machine setups $54,000 Number of setups
Quality inspections $57,000 Number of inspections

For the nubby tires, the company has 400 requisitions, 200 setups, and 200 inspections. The smooth tires require 600 requisitions, 300 setups, and 400 inspections.

Instructions:
**Determine the overhead rate for each activity.**

Explanation / Answer

Materials handling $60,000 1,000 requisitions $60 per requisition Machine setups $54,000 500 setups $108 per setup Quality inspections $57,000 600 inspections $95 per inspection

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