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		$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:

	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).

Assembly Activity	$fill in the blank 1 per dlh
Test and Pack Activity	$fill in the blank 2 per dlh
Setup Activity	$fill in the blank 3 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	$fill in the blank 4	$fill in the blank 5
Toaster oven	$fill in the blank 6