Question

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 _______$Morgana Company identifies three activities in its

per setup
Machining _______$Morgana Company identifies three activities in its

per machine hour
Inspections _____-$Morgana Company identifies three activities in its

per inspection

Answer 1

OAR per Machine Set-ups = $60

OAR per Machining = $15

OAR per Inspection = $50

Step-by-step explanation:

Overhead Absorption Rate (OAR) = Estimated Overhead Costs/ Cost drivers

OAR per Machine Set-ups = $150,000/2,500

= $60 per set-up

OAR per Machining = $375,000/25,000

=$ 15 per machine hr

OAR per Inspection = $87,500/1,750

=$50 per inspection