Question

Swifty Company identifies three activities in its manufacturing process: machine setups, machining, and inspections. Estimated annual overhead cost for each activity is $205,900, $411,200, and $58,500, respectively. The cost driver for each activity and the estimated annual usage are number of setups 2,900, machine hours 25,700, and number of inspections 1,300.

Compute the overhead rate for each activity.

Machine setups		$enter a dollar amount per setup	per setup
Machining		$enter a dollar amount per machine hour	per machine hour
Inspections		$enter a dollar amount per inspection	per inspection

Answer 1

Solution

	Activity rate
Machine setup	$       71.00	Per setup
Machining	$       16.00	Per Machine hour
Inspections	$       45.00	Per inspection

Working.

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Machine setup	Number of setup	$ 205,900	2900	$             71.00	Per setup
Machining	Number of Machine hour	$ 411,200	25700	$             16.00	Per Machine hour
Inspections	Number of inspection	$ 58,500	1300	$             45.00	Per inspection

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