Hernandez Company Has the Following Activities in Its Manufacturing Process

question 178

Essay

Hernandez Company has the following activities in its manufacturing process:
$\begin{array}{|l|l|l|l|}\hline{\text { Activity }} & \text { Annual Overhead Cost } & \text { Expected Annual Use } & \text { Overhead Rate } \\\hline \text { Materials handling } & \$ 60,000 & 600 \text { purchase orders } & \\\hline \text { Machine set-ups } & \$ 15,000 & 60 \text { batches } & \\\hline \text { Product testing } & \$ 28,000 & 375 \text { tests } & \\\hline\end{array}$ Calculate the overhead rate for each activity.

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Definitions:

Markup Percentage

The amount by which the cost of a product is increased to arrive at the selling price, expressed as a percentage of the cost.

Fixed Costs

Expenses that do not change with the level of goods or services produced by the business over the short term.

Product Cost Concept

The accounting principle that determines the cost of a product by adding the costs of raw materials, labor, and overhead incurred in its production.

Rate of Return

The increase or decrease in the value of an investment during a certain timeframe, represented as a percentage of the original investment's cost.