Exercise 12.27 (Ed. 3: 10.24)

Kestral Manufacturing identified the following overhead costs and cost drivers for the current period. Kestral produces customised products that move through several different processes. Materials and intermediate products are moved among several different workstations. Custom features are designed by engineers.

Activity	Cost driver	Estimated cost	Estimated activity level
Machine set-up	Number of set-ups	$40,000	400
Materials handling	Number of times materials are moved	$160,000	16,000
Product design	Design hours	$100,000	2,000
Inspection	Number of inspections	$260,000	13,000
Total cost		$560,000

Information for three of the jobs completed during the period follows.

	Job 42	Job 43	Job 44
Direct materials	$10,000	$24,000	$16,000
Direct labour	$4,000	$4,000	$8,000
Units completed	200	100	400
Number of set-ups	2	4	8
Number of material moves	60	20	100
Number of inspections	40	20	60
Number of design hours	20	100	20

Required

(a) If the company uses ABC, how much overhead cost should be assigned to job 42?

(b) If the company uses ABC, calculate the cost per unit for job 43.

(c) Kestral would like to reduce the cost of its overhead activities. Describe non-value added activities and explain why reducing these specific activities might also reduce cost.