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   Activity-Based Costing and Product Cost Distortion

   Four Finger Appliance Company manufactures small kitchen appliances. The product line consists of blenders and toaster ovens. Four Finger Appliance presently uses the multiple production department factory overhead rate method. The factory overhead is as follows:

   Assembly Department		$186,000
   Test and Pack Department		120,000
   	Total	$306,000

   The direct labor information for the production of 7,500 units of each product is as follows:

   	Assembly Department					Test and Pack Department
   Blender				750dlh					2,250dlh
   Toaster oven				2,250dlh					750 dlh
   Total				3,000dlh					3,000dlh

   Four Finger Appliance used direct labor hours to allocate production department factory overhead to products.

   The management of Four Finger Appliance Company has asked you to use activity-based costing to allocate factory overhead costs to the two products. You have determined that $81,000 of factory overhead from each of the production departments can be associated with setup activity ($162,000 in total). Company records indicate that blenders required 135 setups, while the toaster ovens required only 45 setups. Each product has a production volume of 7,500 units.

   If required, round all per unit answers to the nearest cent.

   a. Determine the three activity rates (assembly, test and pack, and setup).

   Assembly Activity	$ per dlh
   Test and Pack Activity	$ per dlh
   Setup Activity	$ per dlh

   b. Determine the total factory overhead and factory overhead per unit allocated to each product using the activity rates in (a).

   Product	Total Factory Overhead	Factory Overhead Cost Per Unit
   Blender	$	$
   Toaster oven	$	$

   

Activity-Based Costing and Product Cost Distortion Four Finger Appliance Company manufactures small kitchen appliances. The product line consists of blenders and toaster ovens. Four Finger Appliance presently use multiple production department factory overhead rate method. The factory overhead is as follows: Assembly Department $186,000 Test and Pack Department 120,000 Total $306,000 The direct labor information for the production of 7,500 units of each product is as follows: Assembly Department Test and Pack Department Blender 750 din 2,250 dih Toaster oven 2,250 750 Total 3,000 dih 3,000 dih Four Finger Appliance used direct labor hours to allocate production department factory overhead to products. The management of Four Finger Appliance Company has asked you to use activity-based costing to allocate factory overhead costs to the two products. You have determined that $81,000 of factory overhead from each of the production departments can be associated with setup activity ($162,000 in total). Company records indicate that blenders required 135 setups, while the toaster ovens required only 45 setups. Each product has a production volume of 7,500 units. If required, round all per unit answers to the nearest cent. a. Determine the three activity rates (assembly, test and pack, and setup). Assembly Department Test and Pack Department Blender 750 dih 2,250 dih Toaster oven 2,250 750 Total 3,000 dih 3,000 din Four Finger Appliance used direct labor hours to allocate production department factory overhead to products. The management of Four Finger Appliance Company has asked you to use activity-based costing to allocate factory overhead costs to the two products. You have determined that $81,000 of factory overhead from each of the production departments can be associated with setup activity ($162,000 in total). Company records indicate that blenders required 135 setups, while the toaster ovens required only 45 setups. Each product has a production volume of 7,500 units. If required, round all per unit answers to the nearest cent. a. Determine the three activity rates (assembly, test and pack, and setup). Assembly Activity 62 X per dlh Test and Pack Activity 40 X per dih Setup Activity X per setup b. Determine the total factory overhead and factory overhead per unit allocated to each product using the activity rates in (a). Product Total Factory Overhead Factory Overhead Cost Per Unit Blender 136,500 X 18.6 x Toaster oven 169,500 x