Alcatraz Company makes two models of an antitheft device.

The portable model is

relatively small and is primarily for use in automobiles. The standard model is
much larger and is designed for houses and buildings. The Fabricating Department
cuts, bends, and welds sheet metal to produce the external box of the device. The box
is also painted in this department. The Assembly Department uses purchased parts to
produce the internal workings and fits them into the prepared metal boxes.

Alcatraz has conducted a special study to determine if an activity-based costing

system would be beneficial in determining the costs of the two products. The
Fabricating Department is a more complex department than the Assembly
Department and has been chosen for a pilot test of an ABC system. The following
activities have been identified, along with their associated costs:
Depreciation........................................... $250,000
Factory lease.......................................... 125,000
Inspection............................................... 75,000
Factory maintenance.............................. 150,000
Materials handling................................. 100,000
Power..................................................... 50,000
Product engineering changes................. 25,000
Setups..................................................... 125,000
Department manager salaries................. 60,000
The analysts have identified the following potential activity drivers and the capacity
of each:
Portable Standard
Direct labor ($10 per hour)................... $75,000 $90,000
Machine hours........................................ 4,000 6,000
Materials................................................ $450,000 $650,000
Number of moves................................... 1,500 1,500
Number of products............................... 1 1
Number of setups................................... 150 350
Units produced....................................... 15,000 17,500

Required
a. Classify each activity according to activity level and identify an appropriate
driver for each.
b. Create homogeneous cost pools and calculate pool rates. (Use the number of
setups as the activity driver for both inspection and setups costs. Machine
hours serve as the activity driver for depreciation, factory lease, factory
maintenance, and department manager salaries.)
c. Use the pool rates to compute per unit overhead costs for the two products.