Chapter 18 #11

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:

Activity	Budgeted Activity Cost	Activity Base
Casting	$560,000		Machine hours
Assembly	75,000		Direct labor hours
Inspecting	30,000		Number of inspections
Setup	18,750		Number of setups
Materials handling	14,000		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	7,500		12,500		20,000
Direct labor hours	2,000		3,000		5,000
Number of inspections	500		250		750
Number of setups	150		100		250
Number of loads	400		300		700
Units produced	5,000		2,500		7,500

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 rates to the nearest cent.

Product	Total Activity Cost	Activity Cost Per Unit
Entry Lighting Fixtures	$______?______	$______?______
Dining Room Lighting Fixtures	$______?______	$______?______