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Allocate overhead using a single plantwide rate, multiple department rates, and activity-based costing Big Sound Inc. manufactures two products: receivers and loudspeakers. The factory
Allocate overhead using a single plantwide rate, multiple department rates, and activity-based costing Big Sound Inc. manufactures two products: receivers and loudspeakers. The factory overhead incurred is as follows: Indirect labor Subassembly Department Final Assembly Department $400,400 198,800 Total 114,800 $714,000 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 Base $138,600 Number of setups Activity Budgeted Activity Cost Setup Quality control Totall 261,800 Number of inspections $400,400 The activity-base usage quantities and units produced for the two products follow: Number of Number of Setups Inspections Subassembly Direct Labor Direct Labor Hours- Hours-Final Assembly Units Produced The activity-base usage quantities and units produced for the two products follow: Number of Number of Direct Labor Hours- Direct Labor Hours-Final Units Setups Inspections Subassembly Assembly Produced Receivers 80 450 875 525 7,000 Loudspeakers 320 1,750 525 875 7,000 Total 400 2,200 1,400 1,400 14,000 Required: 1. Determine a plantwide overhead rate based upon direct labor hours. Direct labor overhead rate: s 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 Receivers Loudspeakers Total Factory Overhead Factory Overhead Per Unit 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 $420,000 and $294,000 for the Subassembly and Final Assembly departments, respectively. Department Subassembly Department Final Assembly Department Production Department Rate per direct labor hour per direct labor hour Loudspeakers. 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 $420,000 and $294,000 for the Subassembly and Final Assembly departments, respectively. Department Subassembly Department Final Assembly Department Production Department Rate per direct labor hour 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 Receivers Loudspeakers Total Factory Overhead Factory Overhead Per Unit 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 Setup Quality Control Subassembly Department Final Assembly Department Activity Rate per setup per inspection. per direct labor hour per direct labor hour 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 Receivers Total Activity Cost Activity Cost Per Unit Loudspeakers Receivers Loudspeakers 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 Setup Quality Control Subassembly Department Final Assembly Department Activity Rate per setup per inspection per direct labor hour per direct labor hour 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 Receivers Loudspeakers 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 overhead to receivers and s of overhead to each product, while the multiple production department method allocates s to loudspeakers. Both the plantwide and multiple production department overhead methods allocation of overhead because they account for how each product consumes overhead. In contrast, activity based costing allocates s of factory overhead to receivers and s to loudspeakers. Activity-based costing L for how each product consumes overhead. Loudspeakers have, quality control inspections than do receivers. As a result, loudspeakers have distort the accurately allocates factory overhead because setups than do receivers. In addition, loudspeakers require activity costs than receivers.
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