Activity-Based Department Rate Product Costing and Product Cost Distortions Big Sound Inc. manufactures two products: receivers and loudspeakers. The factory overhead incurred is as follows: 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: Number of Setups Number of Inspections Direct Labor Hours—Subassembly Direct Labor Hours—Final 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 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 $ per direct labor hour Final Assembly Department $ per direct labor hour 2. Determine the total and per-unit factory overhead costs allocated to each product, using the multiple production department overhead rates in (1). Round per unit amounts to the nearest whole cent. Product Total Factory Overhead Factory Overhead Per Unit Receivers $ $ Loudspeakers $ $ 3. 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 $ per setup Quality Control $ per inspection Subassembly Department $ per direct labor hour Final Assembly Department $ per direct labor hour 4. 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: $ $
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 Department Rate Product Costing and Product Cost Distortions
Big Sound Inc. manufactures two products: receivers and loudspeakers. The factory
| 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:
| Number of Setups | Number of Inspections | Direct Labor Hours—Subassembly | Direct Labor Hours—Final 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 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 | $ per direct labor hour |
| Final Assembly Department | $ per direct labor hour |
2. Determine the total and per-unit
| Product | Total Factory Overhead | Factory Overhead Per Unit |
| Receivers | $ | $ |
| Loudspeakers | $ | $ |
3. 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 | $ per setup |
| Quality Control | $ per inspection |
| Subassembly Department | $ per direct labor hour |
| Final Assembly Department | $ per direct labor hour |
4. 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: | $ | $ |
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