Alcatraz Company makes two models of an antitheft device. The portable model is relatively small and is primarily for use in automobiles. The standard model is much larger and is designed for houses and buildings. The Fabricating Department cuts, bends, and welds sheet metal to produce the external box of the device. The box is also painted in this department. The Assembly Department uses purchased parts to produce the internal workings and fit them into the prepared metal boxes.

Alcatraz has conducted a special study to determine if an activity-based costing system would be beneficial in determining the costs of the two products. The Fabricating Department is a more complex department than the Assembly Department and has been chosen for a pilot test of an ABC system. The following activities have been identified, along with their associated costs:

Depreciation........................................... $250,000

Factory lease........................................... 125,000

Inspection............................................... 75,000

Factory maintenance............................... 150,000

Materials handling.................................. 100,000

Power..................................................... 50,000

Product engineering changes................... 25,000

Setups..................................................... 125,000

Department manager salaries.................. 60,000

The analysts have identified the following potential activity drivers and the capacity of each:

PortableStandard

Direct labor ($10 per hour)................... $75,000$90,000

Machine hours........................................ 4,0006,000

Materials................................................. $450,000$650,000

Number of moves................................... 1,5001,500

Number of products............................... 11

Number of setups................................... 150350

Units produced....................................... 15,00017,500

Required:

1.Classify each activity according to activity level and identify an appropriate driver for each.

2.Create homogeneous cost pools and calculate pool rates. (Use the number of setups as the activity driver for both inspection and setups costs. Machine hours serve as the activity driver for depreciation, factory lease, factory maintenance, and department manager salaries.)

3.Use the pool rates to compute per unit overhead costs for the two products.