Chapter 4, Problem 4.9E

Air United, 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 $94,500 were estimated. An analysis of estimated overhead costs reveals the following activities.

	Activities	Cost Drivers	Total Cost
1.	Materials handling	Number of requisitions	$40,000
2.	Machine setups	Number of setups	21,500
3.	Quality inspections	Number of inspections	33,000
			$94,500

The cost driver volume for each product was as follows.

Cost Drivers	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 Air United explaining the benefits of activity-based costing.