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 $233,280 Machine hours Assembly 188,360 Direct labor hours Inspecting Number of inspections Setup 30,520 48,320 39,950 Number of setups Materials handling 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 5,150 4,570 9,720 Direct labor hours 4,430 6,650 11,080 Number of inspections 1,660 520 2,180 Number of setups 260 60 320 Number of loads 670 180 850 Units produced 10,200 5,100 15,300 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

Answer 1

Answer a)

Calculation of activity rate for each activity

Activity Centre	Activity Base	Budgeted Activity Cost (In $)	Total number of Activities	Activity Rate (Budgeted Activity Cost/ Total number of Activities) (In $)
Casting	Machine hours	$           233,280	9,720	$                24.00	per machine hour
Assembly	Direct Labor hours	$           188,360	11,080	$                 17.00	per direct labor hour
Inspecting	Number of Inspections	$              30,520	2,180	$                 14.00	per inspection
Setups	Number of Setups	$              48,320	320	$              151.00	per setups
Materials handling	Number of loads	$              39,950	850	$                 47.00	per load
Total	540,430

Answer b)

Calculation of total and per-unit activity cost of each product

Activity Centre	Activity Base	Activity Rate (In $)	Total number of Activities consumed	Assigned Activity Cost (Activity Rates X Activity Consumed)       (In $)
Entry	Dining	Entry	Dining
Casting	Machine hours	$24.00	per machine hour	5,150	4,570	$123,600	$109,680
Assembly	Direct Labor hours	$17.00	per direct labor hour	4,430	6,650	$75,310	$113,050
Inspecting	Number of Inspections	$14.00	per inspection	1,660	520	$23,240	$7,280
Setups	Number of Setups	$151.00	per setups	260	60	$39,260	$9,060
Materials handling	Number of loads	$47.00	per load	670	180	$31,490	$8,460
Total Activity Cost   (A)	$ 292,900	$ 247,530
Number of Units Produced    (B)	10,200	5,100
Activity Cost per unit (A/B)	$ 28.72	$ 48.54