Wave Wake Marine Company has total estimated factory overhead for the year of $1,200,000, divided into four activities

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