1. Activity-Based And Department Rate Determining the cost of a product, which consist of direct materials, direct labor, and factory overhead.Product Costing and Product Cost Distortions

   Black and Blue Sports Inc. manufactures two products: snowboards and skis. The factory overhead incurred is as follows:

   Indirect labor	$507,000
   Cutting Department	156,000
   Finishing Department	192,000
   Total	$855,000

   The A measure of activity that is related to changes in cost. Used in analyzing and classifying cost behavior.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
   Production control			$237,000			Number of production runs
   Materials handling			270,000			Number of moves
   Total			$507,000

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

   		Number of Production Runs				Number of Moves				Direct Labor Hours-Cutting				Direct Labor Hours-Finishing				Units Produced
   Snowboards			430				5,000				4,000				2,000				6,000
   Skis			70				2,500				2,000				4,000				6,000
   Total			500				7,500				6,000				6,000				12,000

   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 $315,000 and $540,000 for the Cutting and Finishing departments, respectively. Round per unit amounts to the nearest whole cent.

   Department	Production Department Rate
   Cutting Department	$ per direct labor hour
   Finishing 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
   Snowboards	$	$
   Skis	$	$

   3. Determine the The cost of an activity per unit of activity base, determined by dividing the activity cost pool by the activity base.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
   Production Control	$ per prod. run
   Materials Handling	$ per move
   Cutting Department	$ per dlh
   Finishing Department	$ per dlh

   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
   Snowboards	$	$
   Skis	$	$

   5. Comment on the difference in the per-unit overhead allocated to each product under the multiple production department factory overhead rate and activity-based costing methods.

   The activity-based overhead allocation reveals that

   • snowboards
   • skis
   consume more factory overhead on a per-unit basis than do
   • snowboards
   • skis
   . The
   • activity-based
   • multiple production department factory overhead rate
   method does not show this because all factory overhead is assumed to be proportional to direct labor hours. The
   • activity-based
   • multiple production department factory overhead rate
   method separately accounts for the production control and materials handling activity costs. Snowboards have more production control and materials handling activities than do skis. This is because snowboards are made in smaller lots, representing a wide variety of styles. Thus, snowboards have higher activity costs per unit than skis.

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