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QUESTION

The Try Corporation has a machining facility specializing in jobs for the aircraft-components market.

The Try Corporation has a machining facility specializing in jobs for the aircraft-components market. Try’s previous simple job-costing system had two direct-cost categories (direct materials and direct manufacturing labor) and a single indirect-cost pool (manufacturing overhead, allocated using direct manufacturing labor-hours). The indirect cost-allocation rate of the simple system for 2016 would have been $115 per direct manufacturing labor-hour. Recently a team with members from product design, manufacturing, and accounting used an ABC approach to refine its job-costing system. The two direct-cost categories were retained. The team decided to replace the single indirect-cost pool with five indirect-cost pools. The cost pools represent five activity areas at the plant, each with its own supervisor and budget responsibility. Pertinent data are as follows: 

Activity Area Cost-Allocation Base Cost-Allocation Rate Materials handling Parts $ 0.40 Lathe work Lathe turns 0.20 Milling Machine-hours 20.00 Grinding Parts 0.80 Testing Units tested 15.00 Information-gathering technology has advanced to the point at which the data necessary for budgeting in these five activity areas are collected automatically. Two representative jobs processed under the ABC system at the plant in the most recent period had the following characteristics:

                                                                                                               Job 410           Job 411

 Direct material cost per job                                                             $ 9,700           $59,900 

Direct manufacturing labor cost per job                                        $750                $11,250

 Number of direct manufacturing labor-hours per job                25                   375 

Parts per job                                                                                        500                  2,000  

Lathe turns per job                                                                            20,000              59,250 

Machine-hours per job                                                                     150                     1,050 

Units per job (all units are tested)                                                  10                       200

 Required: 

1. Compute the manufacturing cost per unit for each job under the previous simple jobcosting system. 

2. Compute the manufacturing cost per unit for each job under the activity-based costing system. 

3. Compare the per-unit cost figures for Jobs 410 and 411 computed in requirements 1 and 2. Why do the simple and the activity-based costing systems differ in the manufacturing cost per unit for each job? Why might these differences be important to Try Corporation?

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