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 750 dlh 2,250 dlh Toaster oven 2,250 750 Total 3,000 dlh 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 $ per dlh Test and Pack Activity $ 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). Product Total Factory Overhead Factory Overhead Cost Per Unit Blender $ $ Toaster oven $ $
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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
| 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 | dlh | 2,250 | dlh | ||||||
| Toaster oven | 2,250 | 750 | ||||||||
| Total | 3,000 | dlh | 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 | $ per dlh |
| Test and Pack Activity | $ 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).
| Product | Total Factory Overhead | |
| Blender | $ | $ |
| Toaster oven | $ | $ |
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