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Overhead rate-activity based costing

I need help verifying and completing this problem. Please see attached worksheet. Thank you!!!

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 Fribourg Instrument explaining the benefits of activity-based costing.

E4-8 Fribourg Instrument, 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 $89,000 were incurred. An analysis
of overhead costs reveals the following activities.

Activity Cost Driver Total Cost
1. Materials handling Number of requisitions $35,000
2. Machine setups Number of setups 27,000
3. Quality Insoections Number of Inspections 27,000

Cost Driver Instruments Gauges Total
Number of requisitions 400 600 1,000
Number of setups 200 300 500
Number of Inspections 200 400 600


Solution Preview

Your answers are correct.

I am giving below the benefits of Activity Basd Costing System which you can use in your memo.

Activity-based costing improves the accuracy of product costs in three ways.

1. Activity-based costing usually increases the number of cost pools used to accumulate
overhead costs. Rather than accumulating all overhead costs in a single, plantwide pool,
the company accumulates costs for each major activity. This leads to costs being captured more ...

Solution Summary

The solution explains how to calculate the activity rates under activity based costing