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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Activity rates and product costs using activity-based costing

BriteLite Inc. manufactures entry and dining room lighting fixtures. Five activities are used in manufacturing the fixtures. These activities and their associated activity costs and activity bases are as follows:

Activity Activity Costs (Budgeted) Activity Base
Casting $42,000 Machine hours
Assembly 13,500 Direct labor hours
Inspecting 5,800 Number of inspections
Setup 16,800 Number of setups
Materials handling 3,600 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 for each product and in total are provided in the following table:

Activity Base Entry Dining Total
Machine hours 800 600 1,400
Direct labor hours 500 400 900
Number of inspections 140 150 290
Number of setups 80 60 140
Number of loads 50 40 90
Units produced 1,200 500 1,700

a. Determine the activity rate for each activity.

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

a)

To determine

Activity-Based Costing: Activity-Based Costing refers to the allocation of the factory overheads when there are numerous products and processes. Activity-based costing aims at assigning the costs among the products in a proportionate way.

To Determine: The activity rate for each activity of Company B.

Explanation

Calculate the activity rate for each activity of Company B.

Activity Estimated Activity Cost Total Activity-Base Usage Activity Rate
Casting $42,000 1,400 mh $30
Assembly $13,500 900 dlh $15
Inspe...

b)

To determine
The total and per unit activity cost for each product of Company B.

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