Activity-based department rate product costing and product cost distortions Inst
ID: 2451679 • Letter: A
Question
Activity-based department rate product costing and product cost distortions
Instructions
Amount Descriptions
Factory Overhead Rates
Factory Overhead Costs
Activity Table - Receivers
Activity Table - Loudspeakers
Final Question
X
Instructions
Big Sound Inc. manufactures two products: receivers and loudspeakers. The factory overhead incurred is as follows:
1
Indirect labor
$400,400.00
2
Subassembly Department
198,800.00
3
Final Assembly Department
114,800.00
4
Total
$714,000.00
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:
1
Activity
Budgeted Activity Cost
Activity Base
2
Setup
$138,600.00
Number of setups
3
Quality control
261,800.00
Number of inspections
4
Total
$400,400.00
The activity-base usage quantities and units produced for the two products follow:
Amount Descriptions
Direct materials
Final Assembly Department
Loudspeakers
Quality Control
Receivers
Setup
Subassembly Department
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 $420,000 and $294,000 for the Subassembly and Final Assembly departments, respectively. If required, round your answers to two decimal places. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries.
1
Department
Production Department Rate
2
per direct labor hour
3
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). If required, round your answers to two decimal places. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries.
1
Product
Total Factory Overhead
Factory Overhead Per Unit
2
3
5. Explain the difference in the per-unit overhead allocated to each product under the multiple production department factory overhead rate and activity-based costing methods. Check all that apply.
The activity-based overhead allocation reveals that receivers are more costly on a per-unit basis than are the loudspeakers.
The multiple production department factory overhead rate method distorts the unit costs.
Loudspeakers have fewer setups and inspection activities than do receivers, so receivers have higher activity costs per unit.
The activity-based method separately accounts for the setup and quality-control activity costs, decreasing cost distortion.
1
Indirect labor
$400,400.00
2
Subassembly Department
198,800.00
3
Final Assembly Department
114,800.00
4
Total
$714,000.00
Explanation / Answer
1) Multiple overhead rate
Subassembly = $420,000/1400 = $300
Final assembly = $294,000/1400 = $210
2)
1
Product
Total Factory Overhead
2
Re
2)Reciever =875*300+525*210 = total $136,500 per unit $19.50
loudpeaker = 525*300 + 875*210 = totoal $341,250/7000 = $48.75 per unit
3) Activity rates
Set up 138,600/ 400 = $346.50
Inspection $261,800/2200 = $119 per unit
Direct labor assembly = $198,800/1400 = $142
Direct labor final = $114,800/1400 = $82
4)
1
Product
Total Factory Overhead
2
Re
2)Reciever =875*300+525*210 = total $136,500 per unit $19.50
loudpeaker = 525*300 + 875*210 = totoal $341,250/7000 = $48.75 per unit
3) Activity rates
Set up 138,600/ 400 = $346.50
Inspection $261,800/2200 = $119 per unit
Direct labor assembly = $198,800/1400 = $142
Direct labor final = $114,800/1400 = $82
4)
set up inspection direct labor -sub direct labor - final total per unit reciever $27,720 $53,550 $124,250 $43,050 $248,570 $35.51 Loud speaker $110,880 $208,250 $74,550 $71,750 $465,430 $66.49Related Questions
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