Activity-Based Department Rate Product Costing and Product Cost Distortions Big Sound Inc. manufactures two products: receivers and loudspeakers. The factory overhead incurred is as follows: Indirect labor $400,400 Subassembly Department 198,800 Final Assembly Department 114,800     Total $714,000   The activity base associated with the two production departments is direct labor hours. The indirect labor can be assigned to two different activities as follows: Activity   Budgeted Activity Cost   Activity Base Setup     $138,600     Number of setups                               Quality control     261,800     Number of inspections                        Total     $400,400         The activity-base usage quantities and units produced for the two products follow:     Number of Setups   Number of Inspections   Direct Labor Hours—Subassembly   Direct Labor Hours—Final Assembly   Units Produced Receivers     80       450       875       525       7,000   Loudspeakers     320       1,750       525       875       7,000         Total     400       2,200       1,400       1,400       14,000     Required: 1.  Determine the factory overhead rates under the multiple production department rate method. Assume that indirect labor is associated with the production departments, so that the total factory overhead is $420,000 and $294,000 for the Subassembly and Final Assembly departments, respectively. Department Production Department Rate Subassembly Department $ per direct labor hour Final Assembly Department $ per direct labor hour 2.  Determine the total and per-unit factory overhead costs allocated to each product, using the multiple production department overhead rates in (1). Round per unit amounts to the nearest whole cent. Product Total Factory Overhead Factory Overhead Per Unit Receivers $ $ Loudspeakers $ $ 3.  Determine the activity rates, assuming that the indirect labor is associated with activities rather than with the production departments. Round per unit amounts to the nearest whole cent. Activity Activity Rate Setup $ per setup Quality Control $ per inspection Subassembly Department $ per direct labor hour Final Assembly Department $ per direct labor hour 4.  Determine the total and per-unit cost assigned to each product under activity-based costing. Round the per unit amounts to the nearest whole cent. Product Total Activity Cost Activity Cost Per Unit Receivers $ $ Loudspeakers: $ $

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Activity-Based Department Rate Product Costing and Product Cost Distortions

Big Sound Inc. manufactures two products: receivers and loudspeakers. The factory overhead incurred is as follows:

Indirect labor $400,400
Subassembly Department 198,800
Final Assembly Department 114,800
    Total $714,000

 

The activity base associated with the two production departments is direct labor hours. The indirect labor can be assigned to two different activities as follows:

Activity   Budgeted Activity Cost   Activity Base
Setup     $138,600     Number of setups                              
Quality control     261,800     Number of inspections                       
Total     $400,400      

 

The activity-base usage quantities and units produced for the two products follow:

    Number of Setups   Number of Inspections   Direct Labor Hours—Subassembly   Direct Labor Hours—Final Assembly   Units Produced
Receivers     80       450       875       525       7,000  
Loudspeakers     320       1,750       525       875       7,000  
      Total     400       2,200       1,400       1,400       14,000  

 

Required:

1.  Determine the factory overhead rates under the multiple production department rate method. Assume that indirect labor is associated with the production departments, so that the total factory overhead is $420,000 and $294,000 for the Subassembly and Final Assembly departments, respectively.

Department Production Department Rate
Subassembly Department $ per direct labor hour
Final Assembly Department $ per direct labor hour

2.  Determine the total and per-unit factory overhead costs allocated to each product, using the multiple production department overhead rates in (1). Round per unit amounts to the nearest whole cent.

Product Total Factory Overhead Factory Overhead Per Unit
Receivers $ $
Loudspeakers $ $

3.  Determine the activity rates, assuming that the indirect labor is associated with activities rather than with the production departments. Round per unit amounts to the nearest whole cent.

Activity Activity Rate
Setup $ per setup
Quality Control $ per inspection
Subassembly Department $ per direct labor hour
Final Assembly Department $ per direct labor hour

4.  Determine the total and per-unit cost assigned to each product under activity-based costing. Round the per unit amounts to the nearest whole cent.

Product Total Activity Cost Activity Cost Per Unit
Receivers $ $
Loudspeakers: $ $
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