Learning Objective 4 Exercise 26-11 Activity rates and product costs using activ
ID: 2372500 • Letter: L
Question
Exercise 26-11
Activity rates and product costs using activity-based costing
Contemporary Lighting 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:
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 are provided in the table below.
ACTIVITY BASE ENTRY DINING TOTAL
MACHINE HOURS 2600 1200 3800
DIRECT LABOR HOURS 1000 2300 3300
NUMBER OF INSPECTIONS 900 320 1220
NUMBER OF SETUPS 180 60 240
NUMBER OF LOADS 600 250 850
UNITS PRODUCED 7500 3000 10500
a. Determine the activity rate for each activity.
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.
ACTIVITY BUDGETED ACTIVITY COST ACTIVITY BASE
CASTING 106400 MACHINE HOURS
ASSEMBLY 2800 DIRECT LABOR HOURS
INSPECTING 17080 NUMBER OF INSPECTIONS
SETUP 33600 NUMBER OF SETUPS
MATERIALS HANDLING 35700 NUMBER OF LOADSShow All Feedback
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eBook<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />Exercise 26-11
Activity rates and product costs using activity-based costing
Contemporary Lighting 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:
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 are provided in the table below.
ACTIVITY BASE ENTRY DINING TOTAL
MACHINE HOURS 2600 1200 3800
DIRECT LABOR HOURS 1000 2300 3300
NUMBER OF INSPECTIONS 900 320 1220
NUMBER OF SETUPS 180 60 240
NUMBER OF LOADS 600 250 850
UNITS PRODUCED 7500 3000 10500
a. Determine the activity rate for each activity.
Explanation / Answer
a.
A
B
C
D
1
Activity
Budgeted
Activity
Cost ÷
Total
Activity-Base
Activity
= Rate
2
Casting
$106,400
3,800 mh
$28 mh
3
Assembly
52,800
3,300 dlh
$16 dlh
4
Inspecting
17,080
1,220 insp.
$14/insp.
5
Setup
33,600
240
setups
$140/setup
6
Materials
handling
35,700
850
loads
$42/load
b.
A
B
C
D
E
F
G
1
Entry Lighting Fixtures
Dining Room Lighting Fixtures
2
Activity
Activity-Base
Usage ×
Activity Rate
Activity
= Cost
Activity-
Base
Usage ×
Activity
Rate
Activity
= Cost
3
Casting
2,600 mh
$28 mh
$72,800
1,200 mh
$28 mh
$33,600
4
Assembly
1,000 dlh
$16 dlh
16,000
2,300 dlh
$16 dlh
36,800
5
Inspecting
900 insp.
$14/insp.
12,600
320 insp.
$14/insp.
4,480
6
Setup
180
setups
$140/setup
25,200
60
setups
$140/setup
8,400
7
Materials
handling
600 loads
$42/load
25,200
250
loads
$42/load
10,500
8
Total activity cost
$151,800
$93,780
9
Number of units
÷ 7,500
÷ 3,000
10
Activity cost per unit
$ 20.24
$ 31.26
A
B
C
D
1
Activity
Budgeted
Activity
Cost ÷
Total
Activity-Base
Activity
= Rate
2
Casting
$106,400
3,800 mh
$28 mh
3
Assembly
52,800
3,300 dlh
$16 dlh
4
Inspecting
17,080
1,220 insp.
$14/insp.
5
Setup
33,600
240
setups
$140/setup
6
Materials
handling
35,700
850
loads
$42/load
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