Euro-Medi Plc manufactures a wide range of medical instruments. Two testing instruments (101 and 201) are produced at its highly automated Limerick plant. Data for December 2018 are as follows: 

Manufacturing overhead is allocated to each instrument product on the basis of actual direct manufacturing labour-hours per unit for that month. Manufacturing overhead cost for December 2018 is €270,000. The production line at the Limerick plant is a machine-paced one. Direct manufacturing labour is made up of costs paid to workers minimising machine problems rather than actually operating the machines. The machines in this plant are operated by computer specialists and industrial engineers.

Required 

1. Calculate the cost per unit in December 2018 for instrument 101 and instrument 201 under the existing cost accounting system. 

2. The accountant at Euro-Medi proposes combining direct manufacturing labour costs and manufacturing overhead costs into a single conversion costs pool. These conversion costs would be allocated to each unit of product on the basis of direct materials costs. Calculate the cost per unit in December 2018 for instrument 101 and instrument 201 under the accountant’s proposal. 

3. What are the benefits of combining direct manufacturing labour costs and manufacturing overhead costs into a single conversion costs pool?

Transcribed Image Text:

Instrument 101 Instrument 201 Direct materials €100 000 €300 000 Direct manufacturing labour Units produced €20 000 €10 000 5 000 20 000 Actual direct labour-hours 1 000 500