Activity-Based And Department Rate Product Costing and Product Cost Distortions

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

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.

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.

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.

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.

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.

eBook Chapter 18 Homework Printem Activity-Based And Department Rate 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 Cutting Department Finishing Department Total $507,000 156,000 192,000 $855,000 The activity hase associated with the two production departments is direct tabor hours. The indirect tabor can be assigned to two different activities as fotlows: Activity Production control Materials handling Total Budgeted Activity Cost $237,000 270,000 $507,000 Activity Base Number of production runs Number of moves The activity base usage quantities and units produced the two products follow Chapter 18 Homework eBook Printer Number of Moves Number of Production Runs 430 70 500 Direct Labor Hours-Cutting 4,000 2.000 Snowboards Skis 5,000 2.500 7,500 Direct Labor Hours-Finishing 2,000 4,000 6,000 Units Produced 6,000 6,000 12,000 Total 6,000 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 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. per din Activity Activity Rate Production Control per prod.run Material Handling per move Cutting Department per din Finishing Department 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 S. 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 consume more factory overhead on a per-unit basis than do The method does not show this because all factory overhead is assumed to be proportional to direct labor hours. The method separately accounts for the production contro and materials handling activity costs. Snowboards have more production control and materials handling activities then do skls. This is because snowboards are made in smaller fots, representing a wide variety of styles. Thus, snowboards have higher activity costs per unit than skls