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7 June, 05:05

Morgana Company identifies three activities in its manufacturing process: machine setups, machining, and inspections. Estimated annual overhead cost for each activity is $150,000, $375,000, and $87,500, respectively. The cost driver for each activity and the expected annual usage are number of setups 2,500, machine hours 25,000, and number of inspections 1,750.

Compute the overhead rate for each activity.

Machine setups $ per setup

Machining $ per machine hour

Inspections $ per inspection

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  1. 7 June, 07:20
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    Machine setup = $60 per setup

    Machining = $15 per machine hour

    Inspections = $50 per inspection

    Explanation:

    Giving the following information:

    Estimated overhead costs:

    Machine setup = 150,000

    Machining = 375,000

    Inspections = 87,500

    The cost driver for each activity and the expected annual usage are number of setups 2,500, machine hours 25,000, and number of inspections 1,750.

    To calculate the estimated manufacturing overhead rate we need to use the following formula:

    Estimated manufacturing overhead rate = total estimated overhead costs for the period / total amount of allocation base

    Machine setup = 150,000/2,500 = $60 per setup

    Machining = 375,000/25,000 = $15 per machine hour

    Inspections = 87,500/1,750 = $50 per inspection
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