Exercise 9.11 (page 266) : Anderson has identified the following operating activ

Question

Exercise 9.11 (page 266): Anderson has identified the following operating activities for its company, the estimated overhead cost associated with each activity, an appropriate cost driver for each activity, and the estimated usage of the cost driver for the coming period.  Using this information, determine the appropriate overhead rates.

Activity                                             Costs                           Cost Driver                        Est.  Usage

Occupying facilities                       $800,000                        Square feet                         100,000

Testing quality                                 $50,000                        Production Runs                        100

Carrying inventory                        $125,000                        Pounds of Material                 1,500

Setting up machines                        $60,000                        Production Runs                        100

Packing containers                        $400,000                        Units Made                        200,000

Using Machines                             $200,000                        Machine hours                   100,000

Explanation / Answer

The overhead rates are:

Occupying facilities: 800,000/100,000 = $8 per square foot

Testing quality: $50,000/100 = $500 per run

Carrying inventory: $125,000/1500 = $83.33 per pound

Setting up machines: $60,000/100 = $600 per run

Packing containers: $400,000/200,000 = $2 per unit

Using machines: $200,000/100,000 = $2 per machine hour

Hope this helped ! Let me know in case of any queries.

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