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E17-9 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. (a) The overhead rates are: Expected Use Estimated of Cost Driver/ = Activity-Based Activity Cost Pools Overhead Activity OH Rates Materials Handling Value Value ? / requisition Machine Setups Value Value ? / setup Quality inspections Value Value ? / inspection (b) The assignment of overhead costs to products is as follows: Instruments Gauges Total Cost Cost Driver Number Cost Number Cost Assigned Requisitions Value ? Value ? ? Machine setups Value ? Value ? ? Inspections Value ? Value ? ? Total costs assigned ? Expected Use of Drivers ? ? Units produced Value Value OH cost per unit ? ?

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