E22.23. Activity-Based Budget

Highland Industries has the following budget information available for February:

Units manufactured. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000

Factory administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $145,000

Assembly. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . hour per unit $20

Direct materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 pounds per unit $6

Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $40 per batch of 1,000 units

Manufacturing overhead. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8 per unit

Product development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $50,000

Setup cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100 per batch of 1,000 units

Required

a. Use activity-based costing to show 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.