Question

1. Activity-Based Costing for a Service Business

Sterling Hotel uses activity-based costing to determine the cost of servicing customers. There are three activity pools: guest check-in, room cleaning, and meal service. The activity rates associated with each activity pool are $8.70 per guest check-in, $22.00 per room cleaning, and $2.00 per served meal (not including food). Tara Stone visited the hotel for a 5-night stay. Tara had 4 meals in the hotel during the visit.

Determine the total activity-based cost for Stone's visit during the month. Round your answer to the nearest cent.
$_____

2. Activity Rates and Product Costs using Activity-Based Costing

Garfield 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	Budgeted Activity Cost		Activity Base
Casting	$217,120		Machine hours
Assembly	161,400		Direct labor hours
Inspecting	23,640		Number of inspections
Setup	42,900		Number of setups
Materials handling	48,760		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	5,000		4,440		9,440
Direct labor hours	4,300		6,460		10,760
Number of inspections	1,500		470		1,970
Number of setups	240		60		300
Number of loads	840		220		1,060
Units produced	10,000		5,000		15,000

a. Determine the activity rate for each activity. If required, round the rate to the nearest dollar.

Activity	Activity Rate
Casting	$	per machine hour
Assembly	$	per direct labor hour
Inspecting	$	per inspection
Setup	$	per setup
Materials handling	$	per load

b. Use the activity rates in (a) to determine the total and per-unit activity costs associated with each product. Round the per unit rates to the nearest cent.

Product	Total Activity Cost	Activity Cost Per Unit
Entry Lighting Fixtures	$	$
Dining Room Lighting Fixtures	$	$

Answer 1

Sterling Hotel

Activity Pool	Activity Rate $		Activity Usage	Activity-Based Cost $
Guest check-in	$       8.70	per guest check-in	1	8.70
Room cleaning	$    22.00	per room cleaning	5	110.00
Meal service	$       2.00	per served meal	4	8.00
Total $				126.70

The total activity-based cost for Stone's visit: $126.70

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