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*E21-14 Carmeli Instrument Inc. manufactures two products: missile range instruments and

Price: $1.99


Carmeli Instrument Inc. manufactures two products: missile range instruments and
space pressure gauges. During January, 50 range instruments and 300 pressure gauges were produced,
and overhead costs of $81,000 were incurred. An analysis of overhead costs reveals the
following activities.


Activities   Cost Drivers   Total Cost
1. Materials handling  Number of requisitions  $30,000
2. Machine setups  Number of setups  27,000
3. Quality inspections  Number of inspections  24,000

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  150 300 450
Number of inspections  200 400 600

Instructions
(a) Determine the overhead rate for each activity.
(b) Assign the manufacturing overhead costs for January to the two products using activity based
costing.
(c) Write a memo to the president of Carmeli Instrument, explaining the benefits of
activity-based costing.

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