Question

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	$258,500		Machine hours
Assembly	188,640		Direct labor hours
Inspecting	27,300		Number of inspections
Setup	57,000		Number of setups
Materials handling	35,260		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	5,480		4,860		10,340
Direct labor hours	4,720		7,070		11,790
Number of inspections	1,600		500		2,100
Number of setups	310		70		380
Number of loads	650		170		820
Units produced	10,800		5,400		16,200

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	$	$

Please explain step by step how you got part B

Answer 1

Requirement a

	Activity rate
Casting	$             25.00	Per machine hour
Assembly	$             16.00	Per Direct labor hour
Inspection	$             13.00	Per Inspection
Setup	$          150.00	Per setup
Material handling	$             43.00	Per loads

Requirement b

	Total Activity cost	Activity Cost per unit
Entry	$          307,770.00	$                 28.50
Dining	$          258,930.00	$                 47.95

Working

Step 1

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Casting	Number of machine hour	$ 258,500	10340	$             25.00	Per machine hour
Assembly	Number of Direct labor hour	$ 188,640	11790	$             16.00	Per Direct labor hour
Inspection	Number of Inspection	$ 27,300	2100	$             13.00	Per Inspection
Setup	Number of setup	$ 57,000	380	$          150.00	Per setup
Material handling	Number of loads	$ 35,260	820	$             43.00	Per loads

.Step 2

Cost assigned to Entry
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Casting	$           25.00	5,480.00	$ 137000.00
Assembly	$           16.00	4,720.00	$ 75,520.00
Inspection	$           13.00	1,600.00	$ 20,800.00
Setup	$        150.00	310.00	$ 46,500.00
Material handling	$           43.00	650.00	$ 27,950.00
Total Overheads assigned			$           307,770.00
Production			10,800.00
Overhead cost per unit			$ 28.50

Step 3

Cost assigned to Dining
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Casting	$           25.00	4860	$ 121,500
Assembly	$           16.00	7070	$ 113,120
Inspection	$           13.00	500	$ 6,500
Setup	$        150.00	70	$ 10,500
Material handling	$           43.00	170	$ 7,310
Total Overheads assigned			$           258,930.00
Production			5,400.00
Overhead cost per unit			$               47.95