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:

Line Item Description	Amount
Assembly Department	$186,000
Test and Pack Department	120,000
Total	$306,000

The direct labor information for the production of 7,500 units of each product is as follows:

Kitchen Appliances	Assembly Department	Test and Pack Department
Blender	750 dlh	2,250 dlh
Toaster oven	2,250	750
Total	3,000 dlh	3,000 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 $81,000 of factory overhead from each of the production departments can be associated with setup activity ($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 three activity rates (assembly, test and pack, and setup).

Activity	Amount
Assembly Activity	?
Test and Pack Activity	?
Setup Activity	900

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	$?	$?