Question

Four Finger Appliance Company manufactures small kitchen appliances. The product line consists of blenders and toaster ovens. Four Finger Appliance presently uses the multiple production department factory overhead rate method. The factory overhead is as follows:

Assembly Department		$186,000
Test and Pack Department		120,000
	Total	$306,000

The direct labor information for the production of 7,500 units of each product is as follows:

	Assembly Department					Test and Pack Department
Blender				750	dlh				2,250	dlh
Toaster oven				2,250					750
Total				3,000	dlh				3,000	dlh

Four Finger Appliance used direct labor hours to allocate production department factory overhead to products.

The management of Four Finger Appliance Company has asked you to use activity-based costing to allocate factory overhead costs to the two products. You have determined that $81,000 of factory overhead from each of the production departments can be associated with setup activity ($162,000 in total). Company records indicate that blenders required 135 setups, while the toaster ovens required only 45 setups. Each product has a production volume of 7,500 units.

If required, round all per unit answers to the nearest cent.

a. Determine the three activity rates (assembly, test and pack, and setup).

Assembly Activity	$ per dlh
Test and Pack Activity	$ per dlh
Setup Activity	$ per setup

b. Determine the total factory overhead and factory overhead per unit allocated to each product using the activity rates in (a).

Product	Total Factory Overhead	Factory Overhead Cost Per Unit
Blender	$	$
Toaster oven	$	$

Answer 1

a
Assembly Activity	35	per dlh	=(186000-81000)/3000
Test and Pack Activity	13	per dlh	=(120000-81000)/3000
Setup Activity	900	per setup	=162000/(135+45)
b
	Total Factory Overhead	Factory Overhead Cost Per Unit
Blender	177000	23.60
Toaster oven	129000	17.20

Workings:
Blender :
Assembly Activity	26250	=750*35
Test and Pack Activity	29250	=2250*13
Setup Activity	121500	=135*900
Total Factory Overhead	177000
Divide by units	7500
Factory Overhead Cost Per Unit	23.6
Toaster oven :
Assembly Activity	78750	=2250*35
Test and Pack Activity	9750	=750*13
Setup Activity	40500	=45*900
Total Factory Overhead	129000
Divide by units	7500
Factory Overhead Cost Per Unit	17.2