Activity-based costing and product cost distortion

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

Assembly Department ............................$442,500

Test and Pack Department .......................202,500

Total .......................................................$645,000

The direct labor information for the production of 6,400 units of each product is as follows:

Gourmet Appliance used direct labor hours to allocate production department factory overhead to products.
The management of Gourmet Appliance Company has asked you to use activity-based costing to allocate factory overhead costs to the two products. You have determined that $30,000 of factory overhead from each of the production departments can be associated with setup activity ($60,000 in total). Company records indicate that blenders required 50 setups, while the toaster ovens required 100 setups. Each product has a production volume of 6,400 units.
If required, round all per unit answers to nearest cent.
A. Determine the three activity rates (assembly, test and pack, and setup).

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

Transcribed Image Text:

Assembly Department Test and Pack Department Blender Toaster oven Total 3,750 dlh 11,250 15,000 dlh 11.250 dlh 3,750 15,000 dlh 27.50 Item 1 Assembly Activity S per dlh 11.50 Item 2 Test and Pack Activity S per dlh 400 tem 3 Setup Activity S per setup