Activity-Based Costing andProduct CostDistortion

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$186,000Test and Pack Department120,000Total$306,000The direct labor information for the production of 7,500 units of each product is as follows:

Assembly DepartmentTest and Pack DepartmentBlender750dlh2,250dlhToaster oven2,250750Total3,000dlh3,000dlhFour 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 $81,000 of factory overhead from each of the production departments can be associated withsetupactivity ($162,000 in total). Company records indicate that blenders required 135 setups, while the toaster ovens required only 45 setups. Each product has a production volume of 7,500 units.

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

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

Assembly Activity$per dlhTest and Pack Activity$per dlhSetup Activity$per setup

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

ProductTotal Factory OverheadFactory Overhead Cost Per UnitBlender$$Toaster oven$$