Problem: 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
Instructions:
a. Determine the overhead rate for each activity.
Number of requisitions 35.00
Number of setups 54.00
Number of Inspections 45.00
b. Assign the manufacturing overhead costs for April to the two products using activity-based costing.
Instruments Gauges
Number of requisitions 14,000 21,000
Number of setups 10,800 16,200
Number of Inspections 9,000 18,000
c. Write a memorandum to the president of Fribourg Instrument explaining the benefits of activity-based costing.