Exercise # 5: Activity rates and product costs using activity-based costing

Lightsquare 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:

Activity

Budgeted Activity Cost

Activity Base

Casting

$127,750

Machine hours

Assembly

63,200

Direct labor hours

Inspecting

21,330

Number of Inspections

Setup

28,750

Number of setups

Materials handling

31,600

Number of loads

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 follow:

Activity base

Entry

Dining

Total

Machine hours

2500

1,150

3,650

Direct labor hours

960

2,200

3,160

Number of Inspections

860

325

1,185

Number of setups

170

60

230

Number of loads

570

220

790

Units produced

5,541

2,128

7,669

Instructions:

a.Determine the activity rate for each activity

Cost

Inderect Labor

Materials

Depreciation on Machinery

b.Use the activity rates in (a) to determine the total and per-unit activity costs associated with each product.