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	$570,000		Machine hours
Assembly	80,000		Direct labor hours
Inspecting	42,000		Number of inspections
Setup	38,000		Number of setups
Materials handling	23,750		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	6,000		13,000		19,000
Direct labor hours	3,000		2,000		5,000
Number of inspections	600		400		1,000
Number of setups	300		200		500
Number of loads	450		500		950
Units produced	6,000		3,000		9,000

a. Determine the activity rate for each activity.

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	$30 per machine hour
Assembly	$16 per labor hour
Inspecting	$42 per inspection
Setup	$76 per setup
Materials handling	$25 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	570000	19000	$30 per machine hour
Assembly	Number of direct labor hours	80000	5000	$16 per labor hour
Inspecting	Number of inspections	42000	1000	$42 per inspection
Setup	Number of setups	38000	500	$76 per setup
Materials handling	Number of loads	23750	950	$25 per load
	Total	753750

b)-

LONSDALE INC.
Calculation of total & per unit activity cost of each product
Particluars	Entry Lighting Fixtures	Dinning Room Lighting Fixtures	Total
	$	$	$
Casting costs	6000 machine hours*$30 per machine hour= $180000	13000 machine hours*$30 per machine hour= $390000	570000
Assembly costs	3000 Direct Labor Hours*$16 per Direct Labor Hour= $48000	2000 Direct Labor Hours*$16 per Direct Labor Hour= $32000	80000
Inspecting costs	600 inspections*$42 per inspection=$25200	400 inspections*$42 per inspection=$16800	42000
Set up costs	300 setups*$76 per set up= $22800	200 setups*$76 per set up= $15200	38000
Material handling costs	450 loads*$25 per load= $11250	500 loads*$25 per load= $12500	23750
Total activity costs (a)	287250	466500	753750
Number of units (b)	6000	3000	9000
Activity cost per unit (c=a/b)	47.88	155.50	83.75