Activity rates and product costs using activity-based costing Idris 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 $640,000 Machine hours Assembly 125,000 Direct labor hours Inspecting 30,000 Number of inspections Setup 28,000 Number of setups Materials handling 20,000 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 7,500 12,500 20,000 Direct labor hours 3,000 2,000 5,000 Number of inspections 200 400 600 Number of setups 150 200 350 Number of loads 400 600 1,000 Units produced 5,000 4,000 9,000 a. Determine the activity rate for each activity. Activity Activity Rate Casting $fill in the blank 1 per machine hour Assembly $fill in the blank 2 per direct labor hour Inspecting $fill in the blank 3 per inspection Setup $fill in the blank 4 per setup Materials handling $fill in the blank 5 per load b. Use the activity rates in (a) to determine the total and per-unit activity costs associated with each product. Round the per unit amounts to the nearest cent. Product Total Activity Cost Activity Cost Per Unit Entry Lighting Fixtures $fill in the blank 6 $fill in the blank 7 Dining Room Lighting Fixtures $fill in the blank 8 $fill
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Activity rates and product costs using activity-based costing
Idris 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 | $640,000 | Machine hours |
| Assembly | 125,000 | Direct labor hours |
| Inspecting | 30,000 | Number of inspections |
| Setup | 28,000 | Number of setups |
| Materials handling | 20,000 | 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 | 7,500 | 12,500 | 20,000 |
| Direct labor hours | 3,000 | 2,000 | 5,000 |
| Number of inspections | 200 | 400 | 600 |
| Number of setups | 150 | 200 | 350 |
| Number of loads | 400 | 600 | 1,000 |
| Units produced | 5,000 | 4,000 | 9,000 |
a. Determine the activity rate for each activity.
| Activity | Activity Rate |
|---|---|
| Casting | $fill in the blank 1 per machine hour |
| Assembly | $fill in the blank 2 per direct labor hour |
| Inspecting | $fill in the blank 3 per inspection |
| Setup | $fill in the blank 4 per setup |
| Materials handling | $fill in the blank 5 per load |
b. Use the activity rates in (a) to determine the total and per-unit activity costs associated with each product. Round the per unit amounts to the nearest cent.
| Product | Total Activity Cost | Activity Cost Per Unit |
|---|---|---|
| Entry Lighting Fixtures | $fill in the blank 6 | $fill in the blank 7 |
| Dining Room Lighting Fixtures | $fill in the blank 8 | $fill in the blank 9 |
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