Miramar Industries manufactures two products: A and B. The manufacturing operation involves three overhead activities—production setup, materials handling, and general factory activities. Miramar uses activity-based costing to allocate overhead to products. An activity analysis of the overhead revealed the following estimated costs and activity bases for these activities:ActivityCostActivity BaseProduction setup$250,000Number of setupsMaterial handling150,000Number of partsGeneral overhead80,000Number of direct labor hoursEach product's total activity in each of the three areas are as follows: Product AProduct BNumber of setups100300Number of parts40,00020,000Number of direct labor hours8,00012,000What is the activity rate for production setup?a.$625 per setupb.$2,500 per setupc.$833 per setupd.$400 per setup

Production setup = $250,000 Material handling = $150,000 General overhead = $80,000 No.of setups =…

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Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter4: Activity-based Costing

Section: Chapter Questions

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Miramar Industries manufactures two products: A and B. The manufacturing operation involves three overhead activities—production setup, materials handling, and general factory activities. Miramar uses activity-based costing to allocate overhead to products. An activity analysis of the overhead revealed the following estimated costs and activity bases for these activities:

Activity	Cost	Activity Base
Production setup	$250,000	Number of setups
Material handling	150,000	Number of parts
General overhead	80,000	Number of direct labor hours

Each product's total activity in each of the three areas are as follows:

	Product A	Product B
Number of setups	100	300
Number of parts	40,000	20,000
Number of direct labor hours	8,000	12,000

What is the activity rate for production setup?

a.$625 per setup

b.$2,500 per setup

c.$833 per setup

d.$400 per setup

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