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 manufacturing the fixtures costs and activity bases are as follows: Budgeted Activity Casting Assembly Inspecting Setup Materials handling 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 Corporate records were obtained to estimate the amount of activity to be used by the two products. The estimated activity Entry DiningTotal 7,500 12,500 20,000 2,000 3,000 5,000 750 250 700 5,000 2,500 7,500 Activity Base Machine hours Direct labor hours 500 150 400 250 100 300 Number of inspections Number of setups Number of loads Units produced Check My Work All work saved. 6 8

Explanation / Answer

Answer = 1 Step 1: Calculation of the Activity Cost Driver Rate Activity Cost Driver Rate = Activity Cost / Cost Driver Activity Cost / Cost Driver = Activity Cost Driver   Activity Cost   "/"   Cost Driver " = " To Cost Driver Rate Casting Machiene Hours                         5,60,000 "/"                         20,000 " = " To                        28.00 Assempbly Direct Labour Hrs.                             75,000 "/"                            5,000 " = " To                        15.00 Inspecting No. of inspection                             30,000 "/"                               750 " = " To                        40.00 Setups Numher of Setups                             18,750 "/"                               250 " = " To                        75.00 Material Handling Number of loads                             14,000 "/"                               700 " = " To                        20.00 Total $               6,97,750.00 Answer = 2 DISTRIBUTION OF OVERHEAD COST AS PER ABC COST DRIVER RATE Activity Product Cost Driver Used "X " By Cost Driver Rate   " = " To Activity Cost Divide By   No. of units "=" Cost per unit Casting Machiene Hours Entry                                 7,500 "X " By $                     28.00 " = " To $              2,10,000 "/" By 5000 "=" $                    42.00 Dining                             12,500 "X " By $                     28.00 " = " To $              3,50,000 "/" By 2500 "=" $                  140.00 Assempbly Direct Labour Hrs. Entry                                 2,000 "X " By $                     15.00 " = " To $                 30,000 "/" By 5000 "=" $                       6.00 Dining                               3,000 "X " By $                     15.00 " = " To $                 45,000 "/" By 2500 "=" $                    18.00 Inspecting No. of inspection Entry                                     500 "X " By $                     40.00 " = " To $                 20,000 "/" By 5000 "=" $                       4.00 Dining                                   250 "X " By $                     40.00 " = " To $                 10,000 "/" By 2500 "=" $                       4.00 Setups Numher of Setups Entry                                     150 "X " By $                     75.00 " = " To $                 11,250 "/" By 5000 "=" $                       2.25 Dining                                   100 "X " By $                     75.00 " = " To $                    7,500 "/" By 2500 "=" $                       3.00 Material Handling Number of loads Entry                                     400 "X " By $                     20.00 " = " To $                    8,000 "/" By 5000 "=" $                       1.60 Dining                                   300 "X " By $                     20.00 " = " To $                    6,000 "/" By 2500 "=" $                       2.40 Total $              6,97,750 Product Entry Lighting Fixtures Dining Room Lighting Fixtures Casting $                            2,10,000 $               3,50,000.00 Assembly $                                30,000 $                   45,000.00 Inspecting $                                20,000 $                   10,000.00 Setups $                                11,250 $                     7,500.00 Material Handling $                                  8,000 $                     6,000.00 Total $                            2,79,250 $                     4,18,500 Divide by No. of units 5000 2500 Per unit total activity cost $                                  55.85 $                         167.40

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