AirComp Corporation produces component parts for the aircraft industry. In prior years, they maintained a job-costing system consisting of direct materials and direct labor cost and manufacturing overhead. Manufacturing overhead was allocated to production jobs using a single-indirect cost allocation rate, which was $115 per direct labor hour.

For 20x1, the Company decided to change the method of allocating manufacturing overhead to production jobs from the single-indirect cost allocation approach to the activity-based costing (ABC) indirect cost allocation approach. For purposes of developing the ABC allocation rates, AirComps cost accounting team prepared the following analysis:

Activity	Cost Driver	Allocation Rate
Material handling	Parts handled	$0.40
Lathe work	No. of lathe turns	$0.20
Milling	Machine hours	$20.00
Grinding	No. of parts ground	$0.80
Testing	No. of units tested	$15.00

For 20x1, AirComps cost accountant team prepared the following analysis of the direct costs and indirect cost activities for Job 100 and Job 200, the only production jobs in process for the period:

	Job 100	Job 200
Direct materials cost	$9,700	$59,900
Direct labor cost	$750	$11,250
No. of direct manufacturing labor hours	25	375
No. of parts ground	500	2,000
No. of lathe turns	20,000	60,000
Machine hours	150	1,050
No. of units produced during period (all are tested)	10	200

Required

1.For each job, determine total per unit cost using direct labor hours to allocate manufacturing overhead to each job.

2.For each job, determine total per unit cost using an activity-based costing approach to allocate manufacturing overhead cost to job.

3.Compare the per unit cost figures for each job computed in step a. and step b., above. Why do the new ABC approach differ from the single-indirect cost allocation systems differ in the amount of the per unit indirect cost allocated to each job (i.e. what was the implications of the cost allocation method change on the amount of per unit cost allocated to each job and what factors caused the observed changes).

4.How might AirComp Corporation use the information from ABC allocation approach to better manage its business, i.e. what are the advantages of using an activity-based costing approach?