8. Activity-Based Costing and Product Cost Distortion

Four Finger Appliance Company manufactures small kitchen appliances. The product line consists of blenders and toaster ovens. Four Finger Appliance presently uses the multiple production department factory overhead rate method. The factory overhead is as follows:

Assembly Department		$533,400
Test and Pack Department		165,400
	Total	$698,800

The direct labor information for the production of 5,100 units of each product is as follows:

	Assembly Department					Test and Pack Department
Blender				4,000	dlh				12,000	dlh
Toaster oven				12,000					4,000
Total				16,000	dlh				16,000	dlh

Four Finger Appliance used direct labor hours to allocate production department factory overhead to products.

The management of Four Finger Appliance Company has asked you to use activity-based costing to allocate factory overhead costs to the two products. You have determined that $37,400 of factory overhead from each of the production departments can be associated with setup activity ($74,800 in total). Company records indicate that blenders required 60 setups, while the toaster ovens required 110 setups. Each product has a production volume of 5,100 units.

If required, round all per unit answers to the nearest cent.

a. Determine the three activity rates (assembly, test and pack, and setup).

Assembly Activity	$ per dlh
Test and Pack Activity	$ per dlh
Setup Activity	$ per setup

b. Determine the total factory overhead and factory overhead per unit allocated to each product using the activity rates in (a).

Product	Total Factory Overhead	Factory Overhead Cost Per Unit
Blender	$	$
Toaster oven	$	$