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: Budgeted Activity Cost Activity Base Activity Casting Assembly Inspecting $250,000 193,800 29,540 45,600 47,500 Machine hours Direct labor hours Number of inspections Number of setups Number of loads Setup Materials handling 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 Machine hours Direct labor hours Number of inspections Number of setups Number of loads Units produced Entry 5,300 4,560 1,600 240 750 10,600 Dining 4,700 6,840 510 60 200 5,300 Total 10,000 11,400 2,110 300 0 950 15,900

Answer 1

a. Activity rates for each activity [Refer working note 1]
Casting	$25	per machine hour
Assembly	$17	per direct labor hour
Inspecting	$14	per inspection
Setup	$152	per setup
Materials handling	$50	per load
b. Total and per-unit activity costs
Product	Total Activity Cost [Refer working note 2]	Activity Cost Per Unit [Refer working note 3]
Entry Lighting Fixtures	$306,400	$28.91
Dining Room Lighting Fixtures	$260,040	$49.06

.

.

Working note 1 - Calculation of Activity rate
Activity	Budgeted activity cost (a)	Activity usage (b)		Activity rate (a / b)
Casting	$250,000	10,000	machine hours	$25	per machine hour
Assembly	$193,800	11,400	direct labor hours	$17	per direct labor hour
Inspecting	$29,540	2,110	inspections	$14	per inspection
Setup	$45,600	300	setups	$152	per setup
Materials handling	$47,500	950	loads	$50	per load

.

.

Working note 2 - Calculation of total activity costs associated with each product
Activity	Activity Rate [Refer working note 1]		Entry Lighting Fixtures			Dining Room Lighting Fixtures
			Activity usage		Allocation of activity cost	Activity usage		Allocation of activity cost
	(a)		(b)		(a x b)	(c)		(a x c)
Casting	$25	per machine hour	5,300	machine hours	$132,500	4,700	machine hours	$117,500
Assembly	$17	per direct labor hour	4,560	direct labor hours	$77,520	6,840	direct labor hours	$116,280
Inspecting	$14	per setup	1,600	inspections	$22,400	510	inspections	$7,140
Setup	$152	per inspection	240	setups	$36,480	60	setups	$9,120
Materials handling	$50	per load	750	loads	$37,500	200	loads	$10,000
Total activity cost assigned					$306,400			$260,040

.

.

Working note 3 - Computation per-unit activity costs associated with each product
	Entry Lighting Fixtures	Dining Room Lighting Fixtures
Total activity cost allocated        [Refer working note 2]             (a)	$306,400	$260,040
Production ( In units)                                                                     (b)	10,600	5,300
Overhead cost per unit                                                (a / b)	$28.91	$49.06