Question

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	$256,250		Machine hours
Assembly	163,660		Direct labor hours
Inspecting	19,470		Number of inspections
Setup	47,250		Number of setups
Materials handling	56,100		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	5,430		4,820		10,250
Direct labor hours	4,680		7,010		11,690
Number of inspections	1,350		420		1,770
Number of setups	280		70		350
Number of loads	870		230		1,100
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	$	$

Answer 1

• All working forms part of the answer
• Requirement ‘a’

--Working

Activity	Budgeted Activity Cost	Activity Base	Total Cost driver	Activity rate
	[A]		[B]	[C = A/B]
Casting	$        256,250.00	Machine hours	10,250	$                25.00
Assembly	$        163,660.00	Direct labor hours	11,690	$                14.00
Inspecting	$          19,470.00	Number of inspections	1,770	$                11.00
Setup	$          47,250.00	Number of setups	350	$              135.00
Materials handling	$          56,100.00	Number of loads	1,100	$                51.00

--Answer

Activity	Activity Rate
Casting	$             25.00	per machine hour
Assembly	$             14.00	per direct labor hour
Inspecting	$             11.00	per inspection
Setup	$            135.00	per setup
Materials handling	$             51.00	per load

• Requirement ‘b’

--Workings

Allocation to Entry Room Lightning Fixtures
Activity	Activity Rate		No. of cost drivers		Activity Cost Allocated
	[A]		[B]		[C = A x B]
Casting	$             25.00	per machine hour	5430	Machine hours	$          135,750.00
Assembly	$             14.00	per direct labor hour	4680	Direct labor hours	$            65,520.00
Inspecting	$             11.00	per inspection	1350	Number of inspections	$            14,850.00
Setup	$            135.00	per setup	280	Number of setups	$            37,800.00
Materials handling	$             51.00	per load	870	Number of loads	$            44,370.00
Total Activity Cost Allocated					$          298,290.00
Total Units					10,800
Activity Cost per unit					$                    27.62

Allocation to Dining Room Lightning Fixtures
Activity	Activity Rate		No. of cost drivers		Activity Cost Allocated
	[A]		[B]		[C = A x B]
Casting	$             25.00	per machine hour	4820	Machine hours	$          120,500.00
Assembly	$             14.00	per direct labor hour	7010	Direct labor hours	$            98,140.00
Inspecting	$             11.00	per inspection	420	Number of inspections	$              4,620.00
Setup	$            135.00	per setup	70	Number of setups	$              9,450.00
Materials handling	$             51.00	per load	230	Number of loads	$            11,730.00
Total Activity Cost Allocated					$          244,440.00
Total Units					5,400
Activity Cost per unit					$                    45.27

--Answers

Product	Total Activity Cost	Activity Cost Per Unit
Entry Lighting Fixtures	$ 298,290.00	$    27.62
Dining Room Lighting Fixtures	$ 244,440.00	$    45.27