Wave Wake Marine Company has total estimated factory overhead for the year of $1,200,000, divided into four activities: fabrication, $450,000; assembly, $210,000; setup, $240,000; and inspection, $300,000. Wave Wake manufactures two types of boats: a speedboat and a bass boat. The activity-base usage quantities for each product by each activity are as follows:
Fabrication Assembly Setup Inspection
Speedboat 800 dlh 1,200 dlh 60 setups 600 inspections
Bass boat 1,200 800 100 200
2,000 dlh 2,000 dlh 160 setups 800 inspections
Each product is budgeted for 200 units of production for the year. Determine (a) the activity rates for each activity and (b) the factory overhead cost per unit for each product, using activity-based costing.
Answer:
a. Fabrication: $450,000 ÷ 2,000 direct labor hours = $225 per dlh
Assembly: $210,000 ÷ 2,000 direct labor hours = $105 per dlh
Setup: $240,000 ÷ 160 setups = $1,500 per setup
Inspection: $300,000 ÷ 800 inspections = $375 per inspection
b. Speedboat Bass Boat
Activity-
Base Activity Activity
Usage × Rate = Cost
Activity-
Base Activity Activity
Usage × Rate = Cost
Fabrication 800 dlh $225 /dlh $180,000 1,200 dlh $225 /dlh $270,000
Assembly 1,200 dlh $105 /dlh 126,000 800 dlh $105 /dlh 84,000
Setup 60 setups $1,500 /setup 90,000 100 setups $1,500 /setup 150,000
Inspection 600 insp. $375 /insp. 225,000 200 insp. $375 /insp. 75,000
Total $621,000 $579,000
÷ Budgeted units to be produced ÷ 200 ÷ 200
Factory overhead per unit $ 3,105 $ 2,895