The Chinese Teapot Company manufactures plastic and ceramic teapots. The company’s western plant has 1 answer below »

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.