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 Activity Cost Activity Base Casting $570,000 Machine hours 80,000 Direct labor hours Inspecting 12,000 Number of inspections Setup 38,000 Number of setups Material handling 23,750 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 Machine hours Direct labor hours Number of inspections Number of setups Number of loads Units produced Entry Dining Total 6,000 13,000 19,000 3,000 2,000 5,000 600 400,000 300 200 500 500 6,000 3,000 9,000 950 a. Determine the activity rate for each activity. 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. Total Activity Cost Activity Cost Per Unit Entry Lighting Futures Dining Room Lighting Fixtures Product

Answer 1

1) Calculate activity rate

Activity	Activity rate
Casting	570000/19000 = 30 per Mh
Assembly	80000/5000= 16 per DLH
Inspecting	42000/1000 = 42 per inspection
Setup	38000/500 = 76 per setup
Material handling	23750/950 = 25 load

2) Calculate following

	Entry	Dining
Casting	180000	390000
Assembly	3000*16 = 48000	32000
Inspecting	600*42 = 25200	16800
Setup	300*76 = 22800	15200
Material handling	450*25 = 11250	12500
Total activity cost	287250	466500
Unit	6000	3000
Activity cost per unit	47.88	155.5