Question 1: Anna Bellatorre, Inc. manufactures five models of kitchen appliances at its Mesa plant. The company is installing activity-based costing and has identified the following activities performed at its Mesa plant.
1. Designing new models.
2. Purchasing raw materials and parts.
3. Storing and managing inventory.
4. Receiving and inspecting raw materials and parts.
5. Interviewing and hiring new personnel.
6. Machine forming sheet steel into appliance parts.
7. Manually assembling parts into appliances.
8. Training all employees of the company.
9. Insuring all tangible fixed assets.
10. Supervising production.
11. Maintaining and repairing machinery and equipment.
12. Painting and packaging finished appliances.
Having analyzed its Mesa plant operations for purposes of installing activity-based costing, Anna Bellatorre, Inc. identified its activity cost centers. It now needs to identify relevant activity cost drivers in order to assign overhead costs to its products.
Instructions:
Using the activities listed above, identify for each activity one or more cost drivers that might be used to assign overhead to Anna Bellatorre’s five products.
Question 2: Fontillas 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 $89,500 were estimated. An analysis of estimated overhead costs reveals the following activities.
| Activities |
|
|
Cost Drivers |
|
Total Cost |
| 1. Materials handling |
|
Number of req's |
|
35,000.00 |
| 2. Machine setups |
|
|
Number of set ups |
|
27,500.00 |
| 3. Quality inspections |
|
Number of Inspections |
27,000.00 |
The cost driver volume for each product was as follows.
| Cost Drivers Instruments Gauges Total |
|
|
Gauges |
|
Total |
| Number of requisitions |
|
400.00 |
|
600.00 |
|
1,000.00 |
| Number of setups |
|
|
200.00 |
|
300.00 |
|
500.00 |
| Number of inspections |
|
200.00 |
|
400.00 |
|
600.00 |
(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 Fontillas Instrument explaining the benefits of activity-based costing.