Chapter 18 Activity Based costing Problem 18-3A

PR 18-3A Activity-based and department rate product costing and Obj. 3,4 product cost distortions Black and Blue Sports Inc. manufactures two products: snowboards and skis. The factory overhead incurred is as follows: Indirect labor Cutting Department Finishing Department Total $507,000 156,000 192,000 $855,000 (Continued) Activity-Based Costing 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: Activity Budgeted Activity Cost Activity Base Production control $237,000 Number of production runs Materials handling 270,000 Number of moves Total $507,000 The activity-base usage quantities and units produced for the two products follow: Number of Moves Number of Production Runs 430 70 500 Snowboards Skis Total 5,000 2,500 7,500 Direct Labor Hours-Cutting 4,000 2,000 6,000 Direct Labor Hours-Finishing 2,000 4,000 6,000 Units Produced 6,000 6,000 12,000 so that the to Instructions 1. Determine the factory overhead rates under the multiple production department rate method Assume that indirect labor is associated with the production departments, tal factory overhead is $315,000 and $540,000 for the Cutting and Finishing departments, respectively. 2. Determine the total and per-unit factory overhead costs allocated to each product, using the multiple production department overhead rates in (1). 3. Determine the activity rates, assuming that the indirect labor is associated with activities rather than with the production departments. 4. Determine the total and per-unit cost assigned to each product under activity-based costing. 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. DD 10 AA ahi