Homework SourseFour Finger Appliance Company manufactures small kitchen app
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:
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.
*If required, round all per-unit answers to the nearest cent.
| 1 | Assembly Department | $186,000.00 |
| 2 | Test and Pack Department | 120,000.00 |
| 3 | Total | $306,000.00 |
Solution
Solution a:
Solution b:
| 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 |
