Activity-Based Budget Highlands Industries has the following budget information

Question

Activity-Based Budget

Highlands Industries has the following budget information available for February:

Units manufactured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000

Factory administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $65,000

Assembly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ½ hour per unit 3 $12

Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 pounds per unit 3 $4

Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $250 per batch of 1,000 units

Manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5 per unit

Product development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,000

Setup cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15 per batch of 1,000 units

Required

a. Use activity based costing to prepare a manufacturing cost budget for February. Clearly distinguish

between unit, batch, and facility-level costs.

b. The operating managers at Highland Industries are concerned that the budgeting process is too time-

consuming and diverts attention from their current day-to-day responsibilities. Discuss the reasons

that Highland should continue budgeting

Explanation / Answer

NOTE:

*It is assumed that assembly cost per hour is $12 . Hence, for 1/2 hr required by each unit, tje cost per unit would be $6.

**It is assumed that material cost per pound is $4. Hence the cost per unit would amount to $8 ($4 x 2lbs per unit)

MANUFACTURING COST BUDGET PARTICULARS UNIT BASED COSTS (30000 units) BATCH BASED COSTS (30 batches) FACTORY BASED COSTS (lump sum) TOTAL Factory administration $65000 $65000 Assembly $180000* $180000 Direct materials $240000** $240000 Inspection $7500 $7500 Manufacturing overhead $150000 $150000 Product development $20000 $20000 Setup cost $450 $450 TOTAL $570000 $7950 $85000 $662950

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