Activity Based Costing: Method of recognizing activities in the organization and allotment of cost of each activity thereto is known as activity based costing. Plant Wide Overhead Rate: Plant wide overhead rate is the method which uses total overhead costs incurred during the production and the allocation base that is total direct labor hours, to determine overhead rate. Departmental Overhead Rate: Departmental overhead rate uses estimated overhead of a particular department by dividing its estimated level of activities within the same department. To identify: Correct options.

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Chapter 4, Problem 1QS

To determine

Activity Based Costing:

Method of recognizing activities in the organization and allotment of cost of each activity thereto is known as activity based costing.

Plant Wide Overhead Rate:

Plant wide overhead rate is the method which uses total overhead costs incurred during the production and the allocation base that is total direct labor hours, to determine overhead rate.

Departmental Overhead Rate:

Departmental overhead rate uses estimated overhead of a particular department by dividing its estimated level of activities within the same department.

To identify: Correct options.

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Activity Based Costing - practice problem Fontillas 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. Activities 1. Materials handling 2. Machine setups Cost Drivers Number of requisitions Number of setups Total cost $35,000 27,500 3. Quality inspections Number of inspections 27,000 $89.500 The cost driver volume for each product was as follows: Cost Drivers Instruments Gauge Total Number of requisitions 400 600 1,000 Number of setups 200 300 500 Number of inspections 200 400 600 Insructions (a) Determine the overhead rate for each activity. (b) Assign the manufacturing overhead costs for April to the two products using activity-based costing.