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	$352,000		Machine hours
Assembly	85,500		Direct labor hours
Inspecting	33,600		Number of inspections
Setup	36,000		Number of setups
Materials handling	29,450		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	5,050		10,950		16,000
Direct labor hours	2,700		1,800		4,500
Number of inspections	210		840		1,050
Number of setups	240		160		400
Number of loads	240		710		950
Units produced	3,700		3,800		7,500

1. 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

2. 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

a) The activity rate for each activity is:-

Activity	Budgeted Cost	Total Base	Activity Rate
Casting	352000	16000	$                   22.00
Assembly	85500	4500	$                   19.00
Inspecting	36600	1050	$                   34.86
Setup	36000	400	$                   90.00
Materials handling	29450	950	$                   31.00

Activity	Activity Rate
Casting	$           22.00	per machine hour
Assembly	$           19.00	per direct labor hour
Inspecting	$           34.86	per inspection
Setup	$           90.00	per setup
Materials handling	$           31.00	per load

b) The total and per-unit activity costs associated with each product is:-

Particular	Entry Lighting Fixture	Dining Room Lighting Fixture
Activity	Activity Base	Activity Rate	Total Cost	Base Hours	Activity Rate	Total Cost
Casting	5050	22	$ 111,100.00	10950	22	$ 240,900.00
Assembly	2700	19	$    51,300.00	1800	19	$    34,200.00
Inspecting	210	34.86	$      7,320.60	840	34.86	$    29,282.40
Setup	240	90	$    21,600.00	160	90	$    14,400.00
Materials handling	240	31	$      7,440.00	710	31	$    22,010.00
Total Cost			$ 198,760.60			$ 340,792.40