Activity-Based Department Rate Product Costing and Product Cost Distortions

Big Sound Inc. manufactures two products: receivers and loudspeakers. The factory overhead incurred is as follows:

The activity base associated with the two production departments is direct labor hours. The indirect labor can be assigned to two different activities as follows:

The activity-base usage quantities and units produced for the two products are shown below.

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 $420,000 and $294,000 for the Subassembly and Final Assembly departments, respectively.

Department	Production Department Rate
Subassembly Department	$ per direct labor hour
Final Assembly 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
Receivers	$	$
Loudspeakers	$	$

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.

Activity	Activity Rate
Setup	$ per setup
Quality Control	$ per inspection
Subassembly Department	$ per direct labor hour
Final Assembly Department	$ per direct labor hour

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
Receivers	$	$
Loudspeakers:	$	$