Question

Activity rates and product costs using activity-based costing onsdale Inc. manufactures entry and dining room lighting fixtures. Five activities are used in manufacturing the futures. These activities and their associated budgeted activity costs and activity bases are as follows: Budgeted Activity Activity Cost Activity Base Casting $465,000 Machine hours Assembly 102,000 Direct labor hours Inspecting 48,400 Number of inspections Setup 45,650 Number of setups Materials handling 52.500 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: Activity Base Entry Dining Total Machine hours 4,740 10,260 15,000 Direct labor hours 3,600 2,400 6,000 Number of inspections 1,100 Number of setups Number of loads 390 1,050 Units produced 2,600 4,400 7,000 490 610 550 This information has been collected in the Microsoft Excel Online nie. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.

Answer 1

А Solution : a. Calculation of Activity rates for each activity cost pool :- Activity Rate = Budgeted Activity cost ( Related to Activity base ) / Activity Base Activity Cost pool Annual Costs (A) Activity base (B) Casting $465,000 15000 Machine hours Activity Rate (A/B) 465000 / 15000 = $ 31 per machine hour Assembly $102,000 6000 Direct labor hours 102000 / 6000 = $ 17 per direct labor hour Inspecting $48,400 1100 Inspections 48400 / 1100 = $ 44 per inspection - Set up $45,650 550 Set ups 45650 / 550 = $ 83 per set up Materials handling $52,500 1050 Loads 52500 / 1050 = $ 50 per Load

27 Calculation of overhead costs based on activity based costing 28 Activity Cost Pool Entry 29 Casting (A) $146,940 Dining $318,060 (10260 machine Hrs * $ 31 per hr) 32 Assembly (B) $61,200 (3600 labor Hrs * $ 17 per labor hr ) $40,800 (2400 labor Hrs * $ 17 per labor hr) 35 Inspecting (C) $21,560 $26,840 (490 Inspections * $ 44 per inspection (610 Inspections * $ 44 per inspection) 37 38 Set up (D) $27,390 (330 Setups * $ 83 per set up) $18,260 (220 Setups * $ 83 per set up) 39 41 Material Handling (E) $19,500 $33,000 42 (390 Loads * $ 50 per load) (660 Loads * $ 50 per load) 14 Total Overhead Costs (A+B+C+D+E) $276,590 $436,960