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Activity ratesThe estimated activity cost divided by estimated activity-base usage. and product costs using activity-based costing

Lightsquare Inc. manufactures entry and dining room lighting fixtures. Five activities

The types of work, or actions, involved in a manufacturing process or service activity.

are used in manufacturing the fixtures. These activities and their associated budgeted activity costs and activity bases

A measure of activity that is related to changes in cost. Used in analyzing and classifying cost behavior. Activity bases are also used in the denominator in calculating the predetermined factory overhead rate to assign overhead costs to cost objects.

are as follows:

	Budgeted
Activity	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			2,500	1,150	3,650
Direct labor hours			960	2,200	3,160
Number of inspections			860	325	1,185
Number of setups An overhead activity that consists of changing tooling in machines in preparation for making a new product.			170	60	230
Number of loads			570	220	790
Units produced			5,541	2,128	7,669
	A.	Determine the activity rate for each activity. Enter these rates in the Activity Rate column.

Entry Lighting Fixtures

Activity

Activity-

Base

Activity

Activity

Usage

X

Rate

=

Cost

Casting

Assembly

Inspecting

Setup

Materials handling

Total activity cost

Number of units

Activity cost per unit

B.

B) 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. Dining Room Lighting Fixtures

Activity

Activity-

Base

Activity

Activity

Usage

X

Rate

=

Cost

Casting

Assembly

Inspecting

Setup

Materials handling

Total activity cost

Number of units

Activity cost per unit

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