E4-9 Compute overhead rates and assign overhead using ABC

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 and compute the overhead cost per unit. (c) Write a memorandum to the president of Air United explaining the benefits of activity-based costing. NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" . (a) The overhead rates are:

Activity Cost Pools				Estimated Overhead		Expected Use of Cost Driver/Activity	=	Activity-Based OH Rates
Materials Handling			Choose...$40,0004333,00021,500$40500$551,000600		Choose...$40,0004333,00021,500$40500$551,000600		Choose...$40,0004333,00021,500$40500$551,000600	/	requisition
Machine Setups			Choose...$40,0004333,00021,500$40500$551,000600		Choose...$40,0004333,00021,500$40500$551,000600		Choose...$40,0004333,00021,500$40500$551,000600	/	setup
Quality inspections			Choose...$40,0004333,00021,500$40500$551,000600		Choose...$40,0004333,00021,500$40500$551,000600		Choose...$40,0004333,00021,500$40500$551,000600	/	inspection

(b) The assignment of overhead costs to products is as follows:

			Instruments				Gauges
Cost Driver			Number		Cost		Number		Cost		Cost Assigned
Requisitions			Choose...$35,600$196$94,500$11,000200300$24,000$8,600$16,000$22,000400		Choose...$35,600$196$94,500$11,000200300$24,000$8,600$16,000$22,000400		Choose...300$12,900$58,900$33,000$40,000200400$21,50050$712600		Choose...$35,600$196$94,500$11,000200300$24,000$8,600$16,000$22,000400		Choose...300$12,900$58,900$33,000$40,000200400$21,50050$712600
Machine setups			Choose...$35,600$196$94,500$11,000200300$24,000$8,600$16,000$22,000400		Choose...$35,600$196$94,500$11,000200300$24,000$8,600$16,000$22,000400		Choose...300$12,900$58,900$33,000$40,000200400$21,50050$712600		Choose...300$12,900$58,900$33,000$40,000200400$21,50050$712600		Choose...300$12,900$58,900$33,000$40,000200400$21,50050$712600
Inspections			Choose...300$12,900$58,900$33,000$40,000200400$21,50050$712600		Choose...$35,600$196$94,500$11,000200300$24,000$8,600$16,000$22,000400		Choose...300$12,900$58,900$33,000$40,000200400$21,50050$712600		Choose...$35,600$196$94,500$11,000200300$24,000$8,600$16,000$22,000400		Choose...300$12,900$58,900$33,000$40,000200400$21,50050$712600
Total costs assigned					Choose...$35,600$196$94,500$11,000200300$24,000$8,600$16,000$22,000400		Expected Use of Drivers		Choose...300$12,900$58,900$33,000$40,000200400$21,50050$712600		Choose...$35,600$196$94,500$11,000200300$24,000$8,600$16,000$22,000400
Units produced					Choose...300$12,900$58,900$33,000$40,000200400$21,50050$712600				Choose...$35,600$196$94,500$11,000200300$24,000$8,600$16,000$22,000400
OH cost per unit					Choose...300$12,900$58,900$33,000$40,000200400$21,50050$712600				Choose...$35,600$196$94,500$11,000200300$24,000$8,600$16,000$22,000400

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(c) Write a memorandum to the president of Air United explaining the benefits of activity-based