Product costs using activity rates

Hercules Inc. manufactures elliptical exercise machines and treadmills. The products are produced in its Fabrication and Assembly production departments. In addition to production activities, several other activities are required to produce the two products. These activities and their associated activity rates are as follows:

Activity	Activity Rate
Fabrication	$34	per machine hour
Assembly	$39	per direct labor hour
Setup	$89	per setup
Inspecting	$24	per inspection
Production scheduling	$23	per production order
Purchasing	$14	per purchase order

The activity-base usage quantities and units produced for each product were as follows:

Activity Base	Elliptical Machines		Treadmill
Machine hours	650		450
Direct labor hours	231		262
Setups	32		32
Inspections	35		45
Production orders	30		20
Purchase orders	313		69
Units produced	510		350

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the question below.

Open spreadsheet

Use the activity rate and usage information to calculate the total activity cost and activity cost per unit for each product. If required, round the per unit answers to the nearest cent.

	Total Activity Cost	Activity Cost Per Unit
Elliptical Machines	$	$
Treadmill	$	$

Activity rates and product costs using activity-based costing

Lonsdale 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	$527,000		Machine hours
Assembly	96,000		Direct labor hours
Inspecting	42,000		Number of inspections
Setup	43,500		Number of setups
Materials handling	32,300		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	5,370		11,630		17,000
Direct labor hours	3,600		2,400		6,000
Number of inspections	300		700		1,000
Number of setups	300		200		500
Number of loads	580		370		950
Units produced	2,400		4,100		6,500

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.

Open spreadsheet

1. Determine the activity rate for each activity. If required, round the rate to the nearest dollar.

   Activity	Activity Rate
   Casting	$	per machine hour
   Assembly	$	per direct labor hour
   Inspecting	$	per inspection
   Setup	$	per setup
   Materials handling	$	per load

2. 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.

   Product	Total Activity Cost	Activity Cost Per Unit
   Entry Lighting Fixtures	$	$
   Dining Room Lighting Fixtures	$	$

Activity-based costing for a service company

Crosswinds Hospital plans to use activity-based costing to assign hospital indirect costs to the care of patients. The hospital has identified the following activities and activity rates for the hospital indirect costs:

Activity		Activity Rate
Room and meals	$250		per day
Radiology	$195		per image
Pharmacy	$50		per physician order
Chemistry lab	$80		per test
Operating room	$880		per operating room hour

The activity usage information associated with the two patients is as follows:

	Abel Putin		Cheryl Umit
Number of days	6	days	3	days
Number of images	6	images	4	images
Number of physician orders	7	orders	3	orders
Number of tests	6	tests	3	tests
Number of operating room hours	5	hours	4	hours

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.

Open spreadsheet

1. Determine the activity cost associated with each patient.

   Abel Putin	$
   Cheryl Umit	$