AirComp Corporation produces component parts for the aircraft industry The company maintains a job costing system consisting of direct materials, direct labor cost and manufacturing overhead For 20x1, the Company is considering changing its 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 manufacturing overhead allocation rates, AirComps cost accounting team prepared the following analysis Activity Cost Cost Driver Materials inspection $30,800 Amount of direct materials cost Materials handling 16,200 Number of material movements Production scheduling 36,000 Number of batches scheduled $83,000 Additionally, 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 Units 1,000 5,000 Number of batches scheduled 50 10 Number of material movements 80 20 Direct materials $40,000 $100,000 Direct labor $20,000 $25,000 Required For each job, determine total cost and per unit cost for the month using direct labor dollars to allocate manufacturing overhead to each job For each job, determine total cost and per unit cost for each job using an activity based costing approach to allocate manufacturing overhead cost to job 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) 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

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Posted on Aug 08, 2024

AirComp Corporation produces component parts for the aircraft industry. The company maintains a job-costing system consisting of direct materials, direct labor cost and manufacturing overhead.

For 20x1, the Company is considering changing its 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 manufacturing overhead allocation rates, AirComps cost accounting team prepared the following analysis:

Activity	Cost	Cost Driver
Materials inspection	$30,800	Amount of direct materials cost
Materials handling	16,200	Number of material movements
Production scheduling	36,000	Number of batches scheduled
	$83,000

Additionally, 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
Units	1,000	5,000
Number of batches scheduled	50	10
Number of material movements	80	20
Direct materials	$40,000	$100,000
Direct labor	$20,000	$25,000

Required

For each job, determine total cost and per unit cost for the month using direct labor dollars to allocate manufacturing overhead to each job.

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

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).

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?