Before Leonard could report back to Tracy . He received a phone call from his friend . Charlie Davis , certified Illailla { { intent accountant . the firm'S plant Manager . Charlie . Leonard . I've gotten wind of your new product cost analysis ." There's no way the costs anywhere near what your numbers say . I just don't believe it . Leonard : Charlie , as you know , our firm has been losing market share over the past three years . We have been losing more and more bids . At first , I thought that other firms were undercutting simply to gain business . but after examining some of the public financial reports . I believe that they are making a reasonable rate of return . I now believe that our costs and casting methods are at fault . Charlie : I can't agree with that . We have good control over our costs . Like must firms in our industry , we use* a normal job costing system . I really don't see any significant waste in the plant . Leonard : After talking with some other controllers at a recent industrial convention , I'm not so sure that waste by itself is the issue . They talked about activity - based management , activity -based casting and continuous improvement . They used " activity drivers" to assign overhead . They claimed that these* new procedures can help to produce more efficiency in manufacturing , better control of overhead and more accurate product casting . A big deal was made of eliminating activities that added no value . Our bids are too high because these other firms have found ways to decrease their overhead costs and to increase the accuracy of their product casting . Charlie : I doubt it . For one thing . I don't see how we can increase product casting accuracy . So many of our costs are indirect costs . Furthermore , everyone uses some measures of production activity to assign overhead costs . I imagine that what they are calling " activity' drivers " is just some new buzzword for measures of production volume . Fads in casting come and go . I wouldn't worry about it . I'll bet that our problems with decreasing sales are temporary . You might recall that we experienced a similar problem about 12 years ago_ it was two years before it straightened out .. Source : Homerun , [. Data . {_ Faster . U . Hajan . M. and IHurt . [ ]aug . Last Accounting . Pearson. New Jersey . Required 1 . Using the information provided by Leonard* a ) Calculate the manufacturing cost per unit for each job under the previous simple job costing system _ by Calculate the manufacturing cost per unit for each job under the activity - based costing system . [ ] Compare the per - unit cost figures for Jobs $ 10 and 41 1 calculated in requirements a ] and by Why do the simple and the activity - based casting systems differ in the manufacturing cost per unit for each job ?! $) How might Tracy Corporation use information from its ABC system to better manage it business! Discuss the ethical issues involved a ) Do you agree or disagree with Charlie Davis and the advice that he gave Lenand Bryner * Explain .* bij Do you think that Charlie was well informed - that he was aware of the accounting implications of ABC and that he knew that was meant by activity drivers ? Should he have been well informed ? Was there any thing wrong or unethical in the behaviour that Charlie displayed ? Which of the principles get out in the Code of Ethics for Professional Accountants have been violated" [ ] What are Leonard's ethical obligations?" What should Leonard do!"I'racy Corporation The Tracy Corporation has a machining facility specializing in jobs for the aircraft - components market* Tracy's previous simple job_ costing system had two direct- cost categories ( direct materials and direct labour ) and a single indirect- Last paul ( manufacturing overhead . allocated using direct labour-hours ! . The indirect* cost- allocation rate of the simple system for 2014 would have been $1 15 per direct manufacturing labour - hour . However , the firm has come under increasing price pressure from other competitors and has been losing market share over the past three years . The CEO Of Tracy Corporation , Tracy Clarkson, was concerned about the business performance and had a chat with the [FO. Leonard Bryner . Tracy Clarkson: Leonard , why can't we compete with these other companies ? Are we really that inefficient ? Leonard Bryner . As I raised this in our last executive meeting , it is due to an outdated casting system . It was apparent that our current system is distorting product costs . I will compile some* data to show you what I mean .... Leonard gathered the basic information needed to implement an activity -based casting system in the following table . Specifically , the two direct- cost categories were retained . Leonard decided to replace the single indirect - cast paul with five indirect - cost pools . The cast pools represent five activity areas at the plant . each with its own supervisor and budget responsibility . Pertinent data are as follows :` Activity Area Activity D'river* Activity Rate Materials handling Parts Lathe work Lathe turns* 1.20 Milling* Machine - hours 201.010 Grinding Parts Testing* Units tested 15 .0^ I'm's representative jobs processed under the ABC system at the plan in the most recent period had the following characteristics * Job + 10 Job $ 1 1 Direct material cost per job $59.9010 Direct manufacturing labour cost per job $750 $1 1 , 250 {`Lilibet at direct manufacturing labour - Hours PET job 25 375 Parts per job 50.0 2.01010 Lathe Turns per job 201.010 0 Machine - hours per job ISU 1. 0150 Units per job (all units are tested! ! 10 20101