Question

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:

1	Assembly Department	$186,000.00
2	Test and Pack Department	120,000.00
3	Total	$306,000.00

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

	Department
	Assembly	Test and Pack
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 instead of direct labor hours 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.

Required:

Complete the Activity Tables for blenders and toaster ovens. a. Determine the three activity rates (assembly, test and pack, and setup).* b. Determine the total factory overhead and factory overhead per unit allocated to each product using the activity rates in (a).* *If required, round all per-unit answers to the nearest cent. Complete the Activity Table for blenders. a. Determine the three activity rates (assembly, test and pack, and setup). Enter these rates in the Activity Rate column.* b. Determine the total factory overhead and factory overhead per unit allocated to blenders product using the activity rates in (a).* *If required, round all per-unit answers to the nearest cent. Blender Activity Activity- Base Activity Activity Usage X Rate = Cost Assembly activity Test and pack activity Setup activity Total Units Factory overhead cost per unit Complete the Activity Table for toaster ovens. a. Determine the three activity rates (assembly, test and pack, and setup). Enter these rates in the Activity Rate column.* b. Determine the total factory overhead and factory overhead per unit allocated to toaster ovens product using the activity rates in (a).* *If required, round all per-unit answers to the nearest cent. Toaster Oven Activity Activity- Base Activity Activity Usage X Rate = Cost Assembly activity Test and pack activity Setup activity Total Units Factory overhead cost per unit

Answer 1

Solution a:

Determination of activity rate for each activity & allocation of overhead
Activity	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate	Blender		Toaster Oven
					Usage	Allocated Costs	Usage	Allocated Costs
Setups	$162,000.00	Nos of setups	180	$900.00	135	$121,500.00	45	$40,500.00
Assembly	$105,000.00	DLH - Assembly	3000	$35.00	750	$26,250.00	2250	$78,750.00
Test and pack department	$39,000.00	DLH - Test and pack	3000	$13.00	2250	$29,250.00	750	$9,750.00
Total	$306,000.00					$177,000.00		$129,000.00

Solution b:

Blender
Activity	Activity-
	Base		Activity		Activity
	Usage	X	Rate	=	Cost
Assembly activity	750	X	$35.00	=	$26,250.00
Test and pack activity	2250	X	$13.00	=	$29,250.00
Setup activity	135	X	$900.00	=	$121,500.00
Total					$177,000.00
Units					7500
Factory overhead cost per unit					$23.60

Toaster Oven
Activity	Activity-
	Base		Activity		Activity
	Usage	X	Rate	=	Cost
Assembly activity	2250	X	$35.00	=	$78,750.00
Test and pack activity	750	X	$13.00	=	$9,750.00
Setup activity	45	X	$900.00	=	$40,500.00
Total					$129,000.00
Units					7500
Factory overhead cost per unit					$17.20