Problem - 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 requisitions                 $35,000

2. Machine setups                           Number of setups                       27,500

3. Quality inspections                     Number of inspections                 27,000

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.

(c) Write a memorandum to the president of Fontillas Instrument explaining the benefits of activity-based costing.