Question

Activity-Based Costing: Factory Overhead Costs The total factory overhead for Bardot Marine Company is budgeted for the year at $1,250,350, divided into four activities: fabrication, $615,000; assembly, $252,000, setup. $209,100; and inspection, $174,250. Bardot Marine manufactures two types of boats: speedboats and bass boats. The activity base usage quantities for each product by each activity are as follows: Fabrication Assembly Setup Inspection Speedboat 10,250 dlh 31,500 dih 74 setups 128 inspections Bass boat 30,750 10,500 541 897 41,000 dih 4 2,000 dlh 615 setups 1025 inspections Each product is budgeted for 5,000 units of production for the year. a. Determine the activity rates for each activity Fabrication $ per direct labor hour Assembly per direct labor hour Setup per setup Inspection per inspection b. Determine the activity-based factory overhead per unit for each product. Round to the nearest whole dollar. Speedboat per unit Bass boat per unit

Answer 1

a. Activity rates for each activity [Refer working note 1]
Fabrication	$15	per direct labor hour
Assembly	$6	per direct labor hour
Setup	$340	per setup
Inspection	$170	per inspection
b. Activity-based factory overhead per unit [Refer working note 2]
Speedboat	$78	per unit
Bass boat	$172	per unit

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Working note 1 - Calculation of Activity rate
Activity	Activity cost (a)	Activity usage (b)		Activity rate (a / b)
Fabrication	$615,000	41,000	dlh's	$15	per dlh
Assembly	$252,000	42,000	dlh's	$6	per dlh
Setup	$209,100	615	setups	$340	per setup
Inspection	$174,250	1,025	inspections	$170	per inspection

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Working note 2 - Computation of overhead cost per unit
	Speedboat	Bass boat
Overhead allocated        [Refer working note 3]             (a)	$389,670	$860,680
Production ( In units)                                                        (b)	5,000	5,000
Overhead cost per unit                                                (a / b)	$78	$172

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Working note 3 - Allocation of Overhead to both the products using activity rates:
Activity Center	Activity Rate [Refer working note 1]		Speedboat			Bass boat
			Activity usage		Allocation of activity center cost (Activity Rate x Activity usage)	Activity usage		Allocation of activity center cost (Activity Rate x Activity usage)
Fabrication	$15	per dlh	10,250	dlh's	$153,750	30,750	dlh's	$461,250
Assembly	$6	per dlh	31,500	dlh's	$189,000	10,500	dlh's	$63,000
Setup	$340	per inspection	74	setups	$25,160	541	setups	$183,940
Inspection	$170	per setup	128	inspections	$21,760	897	inspections	$152,490
Overhead assigned					$389,670			$860,680