Financial and Managerial Accounting: E11-15 The management of Gourmet Helper Appliance Company

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Financial and Managerial Accounting

E11-15 Activity-based costing and product cost distortion
The management of Gourmet Helper Appliance Company in Exercise 11-14 has asked you to use activity-based costing to allocate factory overhead costs to the two products. You have determined that $57,000 of factory overhead from each of the production departments can be associated with setup activity ($114,000 in total). Company records indicate that blenders required 100 setups, while the toaster ovens required only 50 setups. Each product has a production volume of 5,000 units.
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).

Exercise 11-14 Data:
Assembly Department 108,000
Test and Pack Department 70,000
Total 178,000

The direct labor information for the production of 5,000 units of each product is as follows:
Assembly Department Test and Pack Department
Blender 500 DLH 1,500 DLH
Toaster oven 1,500 500
Total 2,000 DLH 2,000 DLH
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