Question

**Please show work**

Activity-Based And Department Rate Product Costing and Product Cost Distortions

Black and Blue Sports Inc. manufactures two products: snowboards and skis. The factory overhead incurred is as follows:

Indirect labor	$507,000
Cutting Department	156,000
Finishing Department	192,000
Total	$855,000

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
Production control			$237,000			Number of production runs
Materials handling			270,000			Number of moves
Total			$507,000

The activity-base usage quantities and units produced for the two products follow:

		Number of Production Runs				Number of Moves				Direct Labor Hours-Cutting				Direct Labor Hours-Finishing				Units Produced
Snowboards			430				5,000				4,000				2,000				6,000
Skis			70				2,500				2,000				4,000				6,000
Total			500				7,500				6,000				6,000				12,000

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 $315,000 and $540,000 for the Cutting and Finishing departments, respectively. Round per unit amounts to the nearest whole cent.

Department	Production Department Rate
Cutting Department	$ per direct labor hour
Finishing 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
Snowboards	$	$
Skis	$	$

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
Production Control	$ per prod. run
Materials Handling	$ per move
Cutting Department	$ per dlh
Finishing Department	$ per dlh

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
Snowboards	$	$
Skis	$	$

5. Comment on the difference in the per-unit overhead allocated to each product under the multiple production department factory overhead rate and activity-based costing methods.

The activity-based overhead allocation reveals that   consume more factory overhead on a per-unit basis than do  . The   method does not show this because all factory overhead is assumed to be proportional to direct labor hours. The   method separately accounts for the production control and materials handling activity costs. Snowboards have more production control and materials handling activities than do skis. This is because snowboards are made in smaller lots, representing a wide variety of styles. Thus, snowboards have higher activity costs per unit than skis.

Answer 1

Department 1 Cutting Department Finishing Department Production Department rate $52.50 per direct labor hour $90.00 per direct labor hour Working notes: Cutting Department Factory overheads Direct Labor hours $315,000 6,000 $52.50 Per Direct Labor hour Finishing Department Factory overheads Direct Labor hours $540,000 6,000 $90.00 Per Direct Labor hour 2 Total factory overhead $390,000 $465,000 Factory overhead per unit $65.00 $77.50 Snowboards Skis Working notes: Snowboards 6,000 4,000 2,000 Skis 6,000 2,000 4,000 Total hours Cutting Department Finishing Department Cost allocation: Cutting Department Finishing Department Total Overheads Total units Cost per unit $210,000 $180,000 $390,000 6,000 $65.00 $105,000 Hours * $52.50 $360,000 Hours * $90 $465,000 6,000 $77.50 Activity 3 Production control Material handling Cutting Department Finishing Department Activity Rate $474 per production run $36 per move $26 per dih $32 per dih Working notes: Activity Cost pool Cost Pool $237,000 $270,000 $507,000 Total Activities 500 7,500 Activity Rate $474 per production run $36 per move Production control Material handling Total Overheads Cutting Department Factory overheads Direct Labor hours $156,000 6,000 $26.00 Per Direct Labor hour Finishing Department Factory overheads Direct Labor hours $192,000 6,000 $32.00 Per Direct Labor hour Snowboards Activity Expected use Based of cost Overhead drivers rates 430 $474 5,000 $36 Cost Assigned Production control Material handling Total Cost assigned Total output Manufacturing cost per unit Skis Expected Activity- use Based Cost of cost Overhea Assigned drivers d rates 70 $474 $33,180 2,500 $36 $90,000 $123,180 6.000 $20.53 $203,820 $180,000 $383,820 6.000 $63.97 Total Activity Activity cost Costs per unit $551,820 $91.97 $303,180 $50.53 4 Snowboards Skis Working notes: Skis 6,000 2,000 4,000 Manufacturing cost - As per ABC method Snowboards Total hours 6,000 Cutting Department 4,000 Finishing Department 2,000 Cost allocation: Cutting Department $104,000 Finishing Department $64,000 Indirect labor $383,820 Total Overheads $551,820 Total units 6,000 Cost per unit $91.97 $52,000 Hours * $26 $128,000 Hours * $32 $123,180 As per above working $303,180 6,000 $50.53 5 The activity-based overhead allocation reveals that Snowboards consume more factory overhead on a per-unit basis than do. The multiple production department rate method does not show this because all factory overhead is assumed to be proportional to direct labor hours. The ABC method separately accounts for the production control and materials handling activity costs. Snowboards have more production control and materials handling activities than do skis. This is because snowboards are made in smaller lots, representing a wide variety of styles. Thus, snowboards have higher activity costs per unit than skis.