Question

(#18-7) Activity Rates and Product Costs using Activity-Based Costing

Garfield 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	$229,000		Machine hours
Assembly	146,160		Direct labor hours
Inspecting	28,600		Number of inspections
Setup	43,230		Number of setups
Materials handling	49,490		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	4,850		4,310		9,160
Direct labor hours	4,180		6,260		10,440
Number of inspections	1,980		620		2,600
Number of setups	270		60		330
Number of loads	800		210		1,010
Units produced	9,600		4,800		14,400

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 rates to the nearest cent.

Product	Total Activity Cost	Activity Cost Per Unit
Entry Lighting Fixtures	$	$
Dining Room Lighting Fixtures	$	$

Answer 1

SOLUTION

A.

Activity	Budgeted Activity cost (a)	Activity base	Quantity of activity (b)	Activity rate (a/b)
Casting	229,000	Machine hours	9,160	25
Assembly	146,160	Direct labor hours	10,440	14
Inspecting	28,600	Number of inspections	2,600	11
Set up	43,230	Number of setups	330	131
Material Handling	49,490	Number of loads	1,010	49

B.

		Entry Lighting Fixtures	Entry Lighting Fixtures	Dining room lighting fixtures	Dining room lighting fixtures
Activity	Activity rate (a)	Quantity of activity (b)	Budgeted activity cost (a*b)	Quantity of activity (c)	Budgeted activity cost (a*c)
Casting	25	4,850	121,250	4,310	107,750
Assembly	14	4,180	58,520	6,260	87,640
Inspecting	11	1,980	21,780	620	6,820
Set up	131	270	35,370	60	7,860
Material Handling	49	800	39,200	210	10,290
Total activity cost			276,120		220,360

Activity cost per unit-

	Entry Lighting Fixtures	Dining room lighting fixtures
Total Activity cost (a)	276,120	220,360
Total Unit produced (b)	9,600	4,800
Cost per unit (a/b)	29	46