Question

Activity-Based Costing

Cardio Care Inc. manufactures stationary bicycles and treadmills. The products are produced in the Fabrication and Assembly production departments. In addition to production activities, several other activities are required to produce the two products. These activities and their associated activity rates are as follows:

Activity	Activity Rate
Fabrication	$20 per machine hour (mh)
Assembly	$12 per direct labor hour (dlh)
Setup	$40 per setup
Inspecting	$18 per inspection
Production scheduling	$14 per production order
Purchasing	$6 per purchase order

The activity-base usage quantities and units produced for each product were as follows:

	Stationary Bicycle			Treadmill
Machine hours	2,030			860
Direct labor hours	460			190
Setups	30			20
Inspections	640			320
Production orders	40			50
Purchase orders	120			120
Units produced	1,000			1,000

Use the activity rate and usage information to compute the total activity costs and the activity costs per unit for each product. If required, round your answers to two decimal places.

Activity	Stationary Bicycle Activity Cost				Treadmill Activity Cost
Fabrication
Assembly
Setup
Inspecting
Production scheduling
Purchasing
Total
Number of units
Activity cost per unit

Answer 1

Activity	Activity rate	Stationery Bicycle Activity driver	Stationery Bicycle Activity cost	Treadmill Activity driver	Treadmill Activity cost
Fabrication	$             20	2030	$                 40,600	860	$          17,200
Assembly	$             12	460	$                   9,200	190	$            3,800
Setup	$             40	30	$                       600	20	$               400
Inspecting	$             18	640	$                 12,800	320	$            6,400
Production scheduling	$             14	40	$                       800	50	$            1,000
Purchasing	$               6	120	$                   2,400	120	$            2,400
Total			$                 66,400		$          31,200
No. of units			1000		1000
Activity cost per unit			$                   66.40		$            31.20

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