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

Question

Derrick Allen

Business

9 January, 14:47

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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Answers (1)

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Kristin Mora · Answer 1

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