Question

EX 18-11 Activity Rates and Product Costs Using Activity-Based Costing Obj. 4 Lonsdale Inc. manufactures entry and dining room lighting fixtures. Five activities are used in manufacturing the fixtures. These activities and their associated budgeted activity costs and activity bases are as follows: Activity Base Activity Casting Assembly Inspecting Setup Materials handling Budgeted Activity Cost $570,000 80,000 42,000 38,000 23,750 Machine hours Direct labor hours Number of inspections Number of setups Number of loads Corporate records were obtained to estimate the amount of activity to be used by the two products. The estimated activity-base usage quantities and units produced follow: Dining Activity Base Machine hours Direct labor hours Number of inspections Number of setups Number of loads Units produced Entry 6,000 3,000 600 Total 19,000 5,000 1,000 500 950 9,000 13,000 2,000 400 200 500 3,000 300 450 6,000 a. Determine the activity rate for each activity. b. Use the activity rates in (a) to determine the total and per-unit activity costs associated with each product. Round to the nearest cent. Answer

Answer 1

Solution:
a)
Activity	Budgeted Activity Cost	Total Activity Base		Activity Rate
				(Budgeted Activity cost/Total activity base)
Casting	$570,000	19000	Mh	$30	/Mh
Assembly	$80,000	5000	Dh	$16	/Dh
Inspection	$42,000	1000	Insp	$42	/Insp
Setup	$38,000	500	Setups	$76	/Setups
Material handling	$23,750	950	Loads	$25	/Loads
To determine the Activity rate we would divide the Budgeted Activity cost of each Actvity with the Activity base of each Activity.
b)
Entry Lighting Fixtures					Dining Room Lighting Fixtures
Activity	Activity Base Usage		Activity Rate	Activity Cost	Activity	Activity Base Usage		Activity Rate	Activity Cost
	(a)		(b)	(c = a*b)		(a)		(b)	(c = a*b)
Casting	6000	Mh	$30	$180,000	Casting	13000	Mh	$30	$390,000
Assembly	3000	Dh	$16	$48,000	Assembly	2000	Dh	$16	$32,000
Inspection	600	Insp	$42	$25,200	Inspection	400	Insp	$42	$16,800
Setup	300	Setups	$76	$22,800	Setup	200	Setups	$76	$15,200
Material handling	450	Loads	$25	$11,250	Material handling	500	Loads	$25	$12,500
Total Activity Cost				$287,250	Total Activity Cost				$466,500
Number of units				6000	Number of units				3000
Activity Cost per unit				$47.88	Activity Cost per unit				$155.50
Activity Cost per unit = Total Activity Cost/Number of units