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 $238,510 Machine hours Assembly 200,940 Direct labor hours Inspecting 31,360 Number of inspections Setup 51,840 Number of setups Materials handling 35,200 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 5,500 4,870 10,370 Direct labor hours 4,730 7,090 11,820 Number of inspections 1,700 540 2.240 Number of setups 290 70 360 Number of loads 700 180 880 Units produced 11,000 5,500 16,500 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 perload 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

Solution

	Activity rate
Casting	$          23.00	Per Machine hour
Assembly	$          17.00	Per direct labor hour
Inspection	$          14.00	Per inspection
setup	$       144.00	Per setup
Material handling	$          40.00	Per loads

.

	Total Activity cost	Activity Cost per unit
Entry Lighting Fixtures	$          300,470.00	$                 27.32
Dining Room Lighting Fixtures	$          257,380.00	$                 46.80

Working

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Casting	Number of Machine hour	$ 238,510	10370	$             23.00	Per Machine hour
Assembly	Number of direct labor hour	$ 200,940	11820	$             17.00	Per direct labor hour
Inspection	Number of inspection	$ 31,360	2240	$             14.00	Per inspection
setup	Number of setup	$ 51,840	360	$          144.00	Per setup
Material handling	Number of loads	$ 35,200	880	$             40.00	Per loads

..

Cost assigned to Entry Lighting Fixtures
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Casting	$           23.00	5,500.00	$ 126500.00
Assembly	$           17.00	4,730.00	$ 80,410.00
Inspection	$           14.00	1,700.00	$ 23,800.00
setup	$        144.00	290.00	$ 41,760.00
Material handling	$           40.00	700.00	$ 28,000.00
Total Overheads assigned			$ 300470.00
Production			11,000.00
Overhead cost per unit			$ 27.32

.

Cost assigned to Dining Room Lighting Fixtures
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Casting	$           23.00	4870	$ 112,010
Assembly	$           17.00	7090	$ 120,530
Inspection	$           14.00	540	$ 7,560
setup	$        144.00	70	$ 10,080
Material handling	$           40.00	180	$ 7,200
Total Overheads assigned			$           257,380.00
Production			5,500.00
Overhead cost per unit			$               46.80