Question

Activity Rates and Product Costs using Activity-Based Costing 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: Budgeted Activity Cost Activity Base Activity Casting $257,850 Machine hours Assembly Inspecting 206,910 41,440 36,400 35,260 Direct labor hours Number of inspections Number of setups Number of loads Setup Materials handling 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 5,060 4,490 9,550 Direct labor hours 4,360 6,530 10,890 Number of inspections 1,970 620 2,590 Number of setups 230 50 280 Number of loads 680 180 860 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 amounts to the nearest cent. Product Total Activity Cost Activity Cost Per Unit Entry Lighting Fixtures Dining Room Lighting Fixtures

Answer 1

a.

Activity	Activity Rate
Casting	$ 27 per machine hour
Assembly	$ 19 per direct labor hour
Inspecting	$ 16 per inspection
Setup	$ 130 per setup
Materials Handling	$ 41 per load

b.

	Total Activity Cost	Activity Cost per Unit
Entry Lighting Fixtures	$ 308,760	$ 30.88
Dining Room Lighting Fixtures	$ 269,100	$ 53.82

Workings:

	Entry Lighting Fixtures	Dining Room Lighting Fixtures
Casting	$ 136,620	$ 121,230
Assembly	82,840	124,070
Inspecting	31,520	9,920
Setup	29,900	6,500
Material Handling	27,880	7,380
Total Activity Cost	$ 308,760	$ 269,100
Units produced	10,000	5,000
Activity Cost per Unit	$ 30.876	$ 53.82