Why gms would use different overhead rates for assembly

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Reference no: EM131810583

Global Measurement Solutions (GMS) specialises in manufacturing precision measuring instruments popular for use by industrial companies. The measuring instruments are produced in two stages: Assembly and Testing

GMS has no beginning inventories as all units produced in the previous year were sold by the end of the year. At the beginning of the year Global has an order for 9,000 units. GMS uses multiple allocation bases, with the predetermined overhead rates based on materials used in assembly and direct labour hours in testing.

The following table contains information on the estimated costs for the year:

	Assembly	Testing
Budgeted overhead	$1,000,000	$500,000
Budgeted material usage	2,000,000	60,000
Budgeted direct labour hours	150,000	100,000
Budgeted direct labour cost	2,250,000	1,500,000

Additional production information:

	Assembly	Testing
Materials requestioned	$2,100,000	$48,000
Direct labour cost	2,600,000	1,525,000
Actual overhead cost	1,200,000	475,000

Direct labour is paid at $20 per hour

Required:

1. Calculate each of the predetermined overhead rates for the GMS departments.

2. Calculate the total and per unit cost of producing 9,000 units of GMS's measuring device.

3. Briefly explain why GMS would use different overhead rates for Assembly and Testing.

Reference no: EM131810583

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