Big Sound Inc. manufactures two products: receivers and loudspeakers. The factor
ID: 2467408 • Letter: B
Question
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:
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
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
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 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.
The activity-based overhead allocation reveals that receivers are more costly on a per-unit basis than are the loudspeakers.
per direct labor hour
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
Answer 1 Department Subassembly Final Assembly Total direct labour hours (A) 1400 1400 Total Factory overhead cost (B) in $ 420000 294000 Factory Overhead Rate (B / A) in $ per hour 300 210 Answer 2 Cost allocation using multiple department overhead rate Product Subassembly (hours * rate) Final Assembly (hours * rate) Total factory overhead cost allocated Units produced in nos. Factory Overhead cost Per unit in $ Receivers 262500 110250 372750 7000 53.25 Loudspeakers 157500 183750 341250 7000 48.75 Total 420000 294000 714000 Answer 3 Calculation activity rates Activiy Activity cost in $ Activity drivers Activity rate in $ A B A / B Setup 138600 400 setups 346.50 Per setup Quality Control 261800 2200 inspections 119.00 per inspection 400400 Answer 4 Cost allocation under ABC Product Subassembly (hours * $142) Final Assembly (hours * $82) Setup cost Quality Control cost Total factory overhead cost allocated Units produced in nos. Factory Overhead cost Per unit in $ Receivers 124250 43050 27720 53550 248570 7000 35.51 Loudspeakers 74550 71750 110880 208250 465430 7000 66.49 Total 198800 114800 138600 261800 714000 Answer 5 Cost of receiver per unit under multiple department overhead rate costing is on higher side compared to unit cost under ABC costing Cost of loudspeaker per unit under multiple department overhead rate costing is on lower side compared to unit cost under ABC costing
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