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:

Line Item Description	Amount
Indirect labor	$400,400
Subassembly Department	198,800
Final Assembly Department	114,800
Total	$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	Budgeted Activity Cost	Activity Base
Setup	$138,600	Number of setups
Quality control	261,800	Number of inspections
Total	$400,400

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

Line Item Description	Number of Setups	Number of Inspections	Direct Labor HoursSubassembly	Direct Labor HoursFinal Assembly	Units 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. fill in the blank 1 of 1Direct 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
Receivers	$fill in the blank 2	$fill in the blank 3
Loudspeakers	$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 $420,000 and $294,000 for the Subassembly and Final Assembly departments, respectively.

Department	Production Department Rate
Subassembly Department	$fill in the blank 6 per direct labor hour
Final Assembly 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
Receivers	$fill in the blank 8	$fill in the blank 9
Loudspeakers	$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
Setup	$fill in the blank 12 per setup
Quality Control	$fill in the blank 13 per inspection
Subassembly Department	$fill in the blank 14 per direct labor hour
Final Assembly Department	$fill in the blank 15 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	$fill in the blank 16	$fill in the blank 17
Loudspeakers	$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 fill in the blank 1 of 12$ of overhead to each product, while the multiple production department method allocates fill in the blank 2 of 12$ overhead to receivers and fill in the blank 3 of 12$ to loudspeakers. Both the plantwide and multiple production department overhead methods fill in the blank 4 of 12

dodo not

distort the allocation of overhead because they fill in the blank 5 of 12

adequatelydo not adequately

account for how each product consumes overhead. In contrast, activity based costing allocates fill in the blank 6 of 12$ of factory overhead to receivers and fill in the blank 7 of 12$ to loudspeakers. Activity-based costing fill in the blank 8 of 12

moreless

accurately allocates factory overhead because fill in the blank 9 of 12

it better accountsit does not better account

for how each product consumes overhead. Loudspeakers have fill in the blank 10 of 12

moreless

setups than do receivers. In addition, loudspeakers require fill in the blank 11 of 12

moreless

quality control inspections than do receivers. As a result, loudspeakers have fill in the blank 12 of 12

higherlower

activity costs than receivers.