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E4-11 Major Instrument, Inc. manufactures two products: missile range instruments

Price: $2.99


E4-11 Major 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 $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 27,500

3. Quality inspections Number of inspections 27,000
$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 activitybased
costing.

(c) Write a memorandum to the president of Major Instrument explaining the
benefi ts of activity-based costing.

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