Hernandez Company Has the Following Activities in Its Manufacturing Process

question 166

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:

Direct Labor-Hours

The total hours of labor directly involved in producing goods or services, which is often used as a base for allocating overhead costs.

Variable Manufacturing Overhead

Costs that vary with the level of manufacturing activity, including items like indirect materials and utilities.

Fixed Manufacturing Overhead

These are the manufacturing costs that do not vary with the volume of production, including costs like rent, insurance, and salaries for certain employees.

Machine-Hours

The total hours that machinery is operational and in use on the production floor.