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Activity-based department rate product costing and product costÂ
Big Sound Inc. manufactures two products: receivers and loudspeakers. The factory over- head incurred is as  follows:
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Total                                                                                                          $714,000
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:
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|
Activity |
Budgeted Activity Cost |
Activity Base |
|
Setup |
$138,600 |
Number of setups |
|
Quality control |
   261,800 |
Number of inspections |
Total                                                             $400,400
The activity-base usage quantities and units produced for the two products follow:
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|
 |
 Number ofSetups |
 Number ofInspections |
Direct LaborHours—Subassembly |
Direct LaborHours— Final Assembly |
 UnitsProduced |
|
Receivers |
80 |
450 |
875 |
525 |
7,000 |
|
Loudspeakers |
320 |
1,750 |
   525 |
   875 |
  7,000 |
Total                                  400                          2,200                                  1,400                                   1,400                             14,000
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Instructions
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.
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 activi- ties 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 un- der the multiple production department factory overhead rate and activity-based costing methods.
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