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:

Activity   Budgeted
Activity Cost  
Activity Base
Casting   $241,280      Machine hours
Assembly   158,700      Direct labor hours
Inspecting   32,160      Number of inspections
Setup   44,950      Number of setups
Materials handling   46,500      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   4,920      4,360      9,280     
Direct labor hours   4,230      6,350      10,580     
Number of inspections   2,040      640      2,680     
Number of setups   230      60      290     
Number of loads   730      200      930     
Units produced   9,800      4,900      14,700     
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

Answer-a)-

ACTIVITY RATE
Activity costs pool	Activity rate
Casting	$26 per machine hour
Assembly	$15 per labor hour
Inspecting	$12 per inspection
Setup	$155 per setup
Materials handling	$50 per load

Explanation-

Calculation of actvity rate
Activity cost pool	Activity Measure	Estimated overhead cost (a)	Expected activity (b)	Activity rate (c=a/b)
		$		$
Casting	Number of machine hours	241280	9280	$26 per machine hour
Assembly	Number of direct labor hours	158700	10580	$15 per labor hour
Inspecting	Number of inspections	32160	2680	$12 per inspection
Setup	Number of setups	44950	290	$155 per setup
Materials handling	Number of loads	46500	930	$50 per load
	Total	523590

b)-

LONSDALE INC.
Calculation of total & per unit activity cost of each product
Particluars	Entry Lighting Fixtures	Dinning Room Lighting Fixtures	Total
	$	$	$
Casting costs	4920 machine hours*$26 per machine hour= $127920	4360 machine hours*$26 per machine hour= $113360	241280
Assembly costs	4230 Direct Labor Hours*$15 per Direct Labor Hour= $63450	6350 Direct Labor Hours*$15 per Direct Labor Hour= $95250	158700
Inspecting costs	2040 inspections*$12 per inspection=$24480	640 inspections*$12 per inspection=$7680	32160
Set up costs	230 setups*$155 per set up= $35650	60 setups*$155 per set up= $9300	44950
Material handling costs	730 loads*$50 per load= $36500	200 loads*$50 per load= $10000	46500
Total activity costs (a)	288000	235590	523590
Number of units (b)	9800	4900	14700
Activity cost per unit (c=a/b)	29.39	48.08	35.62