The Chinese Teapot Company manufactures plastic and ceramic teapots. The company’s western plant has changed from a labor-intensive operation to a robotics environment. As a result, management is considering changing from a direct-labor based overhead rate to an activity-based cost method. The controller has chosen the following activity cost pools and cost drivers for the factory overhead: Expected
Overhead
Cost
Cost Driver Annual
Cost Driver
Purchase orders
$300,000
Number of orders
15,000 orders
Set-up costs
$200,000
Number of set-ups
5,000 set-ups
Testing costs
$320,000
Number of tests
8,000 tests
Machine maintenance
$500,000
Machine hours
25,000 hours
REQUIRED:
a.
Compute the overhead rate for each cost driver.