Activity-Based Budget

Highlands Industries has the following budget information available for February:

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

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

Assembly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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