Allocate overhead using a single plantwide rate, multiple department rates, and activity-based costing

Downhill Sports Inc. manufactures two products: snowboards and skis. The factory overhead incurred is as follows:

Line Item Description	Amount
Indirect labor	$360,000
Cutting Department	250,000
Finishing Department	560,000
Total	$1,170,000

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:

Activity	Budgeted Activity Cost	Activity Base
Production control	$90,000	Number of production runs
Materials handling	270,000	Number of moves
Total	$360,000

The activity-base usage quantities and units produced for the two products follow:

Line Item Description	Number of Production Runs	Number of Moves	Direct Labor Hours-Cutting	Direct Labor Hours-Finishing	Units Produced
Snowboards	450	5,000	2,000	4,000	5,000
Skis	50	2,500	3,000	3,000	5,000
Total	500	7,500	5,000	7,000	10,000

Required:

1. Determine a single plantwide factory overhead rate based upon direct labor hours. FILL IN THE BLANK Direct labor overhead rate: $ per direct labor hour

2. Determine the total and per-unit factory overhead costs allocated to each product, using the plantwide overhead rate in (1). Round per unit amounts to the nearest whole cent.

Product	Total Factory Overhead	Factory Overhead Per Unit
Snowboards	$fill in the blank 2	$fill in the blank 3
Skis	$fill in the blank 4	$fill in the blank 5

3. 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 $435,000 and $735,000 for the Cutting and Finishing departments, respectively. Round per unit amounts to the nearest whole cent.

Department	Production Department Rate
Cutting Department	$fill in the blank 6 per direct labor hour
Finishing Department	$fill in the blank 7 per direct labor hour

4. Determine the total and per-unit factory overhead costs allocated to each product, using the multiple production department overhead rates in (3). Round per unit amounts to the nearest whole cent.

Product	Total Factory Overhead	Factory Overhead Per Unit
Snowboards	$fill in the blank 8	$fill in the blank 9
Skis	$fill in the blank 10	$fill in the blank 11

5. 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
Production Control	$fill in the blank 12 per prod. run
Materials Handling	$fill in the blank 13 per move
Cutting Department	$fill in the blank 14 per dlh
Finishing Department	$fill in the blank 15 per dlh

6. 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
Snowboards	$fill in the blank 16	$fill in the blank 17
Skis	$fill in the blank 18	$fill in the blank 19

7. Comment on the differences in the per-unit overhead allocated to each product using the single plantwide factory overhead rate method, the multiple production department factory overhead rate method, and activity-based costing. The plantwide overhead method allocates $ of overhead to each product, while the multiple production department method allocates $ overhead to snowboards and $ to skis. Both the plantwide and multiple production department methods distort the allocation of overhead because they account for how each product consumes overhead. In contrast, activity-based costing allocates $ of factory overhead to snowboards and $ skis. Activity-based costing accurately allocates factory overhead because for how each product consumes overhead. Snowboards consume direct labor hours in the Finishing Department, which has overhead. In addition, snowboards consume production control and materials handling overhead than do skis. This is because snowboards are made in lots, representing a variety of styles. Thus, snowboards have activity costs than skis