Problem 26-3A Activity-based and department rate product costing and product cos

Question

Problem 26-3A
Activity-based and department rate product costing and product cost distortions

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 $175,000 and $205,000 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 method and activity-based costing methods.

Explanation / Answer

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 $175,000 and $205,000 for the Cutting and Finishing departments, respectively. Department Production department rate Cutting Department $  35 per direct labor hour Finishing Department $  41 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). Product Total factory overhead Factory overhead per unit Snowboards: 184000 46 Skis: 196000 49 3. Determine the activity rates, assuming that the indirect labor is associated with activities rather than with the production departments. Activity Activity rate Production Control $  200 per prod. run Materials Handling $  20 per move Cutting Department $  17 per direct labor hour Finishing Department $  19 per direct labor hour 4. Determine the total and per-unit cost assigned to each product under activity-based costing. Product Total Activity Cost Activity Cost per Unit Snowboards 236000 59 Skis 144000 36 5. Explain the difference in the per-unit overhead allocated to each product under the multiple production department factory overhead rate method and activity-based costing methods. The difference in the per-unit overhead allocated to each product under the multiple production department factory overhead rate method and activity-based costing methods is due to overhead allocated on more efficient manner where cost are apportione in best way where proper activity cost is allocated to each department

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