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	$275,736.00
2	Test and Pack Department	201,046.00
3	Total	$476,782.00

The direct labor information for the production of 8,390 units of each product is as follows:

	Department
	Assembly	Test and Pack
Blender	740 dlh	2,040 dlh
Toaster oven	2,205	680
Total	2,945 dlh	2,720 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 $81,366 of factory overhead from each of the production departments can be associated with setup activity ($162,732 in total). Company records indicate that blenders required 142 setups, while the toaster ovens required only 49 setups. Each product has a production volume of 8,390 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.

Answer 1

a. The three activity rates (assembly, test and pack, and setup)

Cost pools	Cost	Cost drivers	Activity Rates per unit
Assembly	194370	2945 dlh	66
Test and pack	119680	2720 dlh	44
Setup	162732	191 Setups (142+49)	852

b.

Calculation of over head rates per unit as per ABC
		Blender		Toaster oven
	(i)	(ii)= (i)*cost driver	(iii)= (ii)/no. of units	(ii)= (i)*cost driver	(iii)= (ii)/no. of units
Activity	Activity rate per unit	total overhead cost	Over head Rate per unit	total overhead cost	Over head Rate per unit
Assembly	66	48840 (66*740)	5.82	145530 (66*2205)	17.35
Test and pack	44	89760 (44*2040)	10.70	29920 (44*680)	3.57
Setup	852	120984 (852*142)	14.42	41748 (852*49)	4.98