Activity Rates and Product Costs using Activity-Based Costing Garfield Inc. manu

Question

Activity Rates and Product Costs using Activity-Based Costing Garfield Inc. manufactures entry and dining room lighting fixtures. Five activities are used in manufactuing the fotures. These activities and their associated budgeted activity costs and activity bases are as follows: Activity Casting Assembly Activity Cost Activity Base $560,000 Machine hours 75,000 30,000 18,750 14,000 Direct labor hours Number of inspections Number of setups Number of loads Setup Materials handling Corporate records were cbtained 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 a. Determine the activity rate for each activity Activity Casting Assembly Entry Dining Total 7,500 12,500 20,000 2,000 3,000 5,000 250 100 300 750 250 700 7,500 150 100 5,0002,500 Activity Rate per machine hour per direct labor hour per inspection per setup per load Setup Materials handling

Explanation / Answer

a)Calculation of activity rates: Activity cost pools Estimated total cost(a) Estimated cost driver(b) activity rates((a)/(b)) Casting 560000 20000 machine hours 28.00 Assembly 75000 5000 direct labor hours 15.00 Inspecting 30000 750 inspections 40.00 Set up 18750 250 set ups 75.00 Material handling 14000 700 loads 20.00 b)Calculation of total cost and per unit cost of Entry Lighting Fixtures Activity pools (a) activity rates(b) cost(a*b)(in$) Casting 7500 machine hours 28.00 210000 Assembly 2000 direct labor hours 15.00 30000 Inspecting 500 inspections 40.00 20000 Set up 150 set ups 75.00 11250 Material handling 400 loads 20.00 8000 Total activity cost(in$) 279250 Units produced 5000 Activity cost per unit(279250/5000) 55.85 Calculation of total cost and per unit cost of Dining Room Lighting Fixtures Activity pools (a) activity rates(b) cost(a*b)(in$) Casting 12500 machine hours 28.00 350000 Assembly 3000 direct labor hours 15.00 45000 Inspecting 250 inspections 40.00 10000 Set up 100 set ups 75.00 7500 Material handling 300 loads 20.00 6000 Total activity cost(in$) 418500 Units produced 2500 Activity cost per unit(279250/2500) 167.40

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