Question

Activity-based and department rate product costing and product cost distortions Instructions Amount Descriptions Factory Overhead Rates Factory Overhead Costs Instructors Black and Sue Sports Inc. manufactures two products onboards and is the factory overhead incurred is as follows: 1 Indirect labor 350700 15600000 Cutting Department 3 Finishing Department 19200000 S855000.00 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 Base Budgeted Activity Cost 523700000 2 Production control Number of production handing 270,000.00 Number of moves 550700000

Answer 1

1.

	Department	Factory Overhead	Direct labor hours	Production Department rate
1	Cutting Department	$                            315,000	6000	$                     52.50	per direct labor hour
2	Finishing Department	$                            540,000	6000	$                     90.00	per direct labor hour

2.

	Product	Factory Overhead	Units	Factory Overhead per unit
1	Snowboards	$                            390,000	6000	$                     65.00
2	Ski	$                            465,000	6000	$                     77.50

3.

Cost	Activity	Activity Usage	Overhead	Activity Rate
Production Control	No of Production runs	500	$                237,000	$                                 474.00
Materials handling	No of moves	7500	$                270,000	$                                   36.00
Cutting Department	Direct labor hours	6000	$                156,000	$                                   26.00
Finishing Department	Direct labor hours	6000	$                192,000	$                                   32.00

Snowboards
Activity	Activity Usage		Activity rate		Activity Cost
Production Control	430	Production run	$              474.00	Per Production run	$      203,820
Materials handling	5000	move	$                36.00	Per move	$      180,000
Cutting Department	4000	Direct labor hour	$                26.00	Per Direct labor hour	$      104,000
Finishing Department	2000	Direct labor hour	$                32.00	Per Direct labor hour	$        64,000
Total					$      551,820
Number of Units					6000
Activity Cost per unit					$           91.97

Skis
Activity	Activity Usage		Activity rate		Activity Cost
Production Control	70	Production run	$              474.00	Per Production run	$        33,180
Materials handling	2500	move	$                36.00	Per move	$        90,000
Cutting Department	2000	Direct labor hour	$                26.00	Per Direct labor hour	$        52,000
Finishing Department	4000	Direct labor hour	$                32.00	Per Direct labor hour	$      128,000
Total					$      303,180
Number of Units					6000
Activity Cost per unit					$           50.53

5. Answer is b.