Milton Manufacturing has three departments or activities in

Milton Manufacturing has three departments (or activities) in its manufacturing process: machine setups, machining, and inspections. Estimated annual overhead cost for each activity is $80,000, $162,500, and $28,000, respectively. The expected annual use for each activity is 1,000 setups, 12,500 machine hours, and 875 inspections. 1. Compute the overhead rate for each activity Machine Setups Machining Inspections

Solution

Overhead is indirect cost.

Overhead rate should be calculated by dividing “estimated cost” by “annual use”.

M. Set = Estimated cost / Annual setups

            = $80,000 / 1,000

            = $80 (Answer)

Mac = Estimated cost / Annual machine hours

        = $162,500 / 12,500

        = $13 (Answer)

Ins = Estimated cost / Number of inspection

      = $28,000 / 875

      = $32 (Answer)