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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 Test and Pack Department Total $186,000 120,000 $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 Toaster oven Total 750 dlh 2,250 3,000 dlh 2,250 dlh 750 3,000 dlh 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 Test and Pack Activity per dlh per dlh Setup Activity per setup b. Determine the total factory overhead and factory overhead per unit allocated to each product using the activity rates in (a). Factory Overhead Cost Per Unit Product Total Factory Overhead 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 uses the multiple production department factory overhead rate method. The factory overhead is as follows: Assembly Department Test and Pack Department Total $186,000 120,000 $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 Toaster oven Total 750 dlh 2,250 3,000 dlh 2,250 dlh 750 3,000 dlh 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 Test and Pack Activity per dlh per dlh Setup Activity per setup b. Determine the total factory overhead and factory overhead per unit allocated to each product using the activity rates in (a). Factory Overhead Cost Per Unit Product Total Factory Overhead Blender Toaster oven

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter4: Activity-based Costing
Section: Chapter Questions
Problem 14E
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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 Test and Pack Department Total $186,000 120,000 $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 Toaster oven Total 750 dlh 2,250 3,000 dlh 2,250 dlh 750 3,000 dlh 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 Test and Pack Activity per dlh per dlh Setup Activity per setup b. Determine the total factory overhead and factory overhead per unit allocated to each product using the activity rates in (a). Factory Overhead Cost Per Unit Product Total Factory Overhead Blender Toaster oven
Transcribed Image Text: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 Test and Pack Department Total $186,000 120,000 $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 Toaster oven Total 750 dlh 2,250 3,000 dlh 2,250 dlh 750 3,000 dlh 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 Test and Pack Activity per dlh per dlh Setup Activity per setup b. Determine the total factory overhead and factory overhead per unit allocated to each product using the activity rates in (a). Factory Overhead Cost Per Unit Product Total Factory Overhead Blender Toaster oven
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