Gamma Corporation owns a small printing press that prints leaflets, brochures, and advertising materials. Gamma classifies its various printing jobs as standard jobs or special jobs. Gamma's simple job-costing system has two direct-cost categories (direct materials and direct labour) and a single indirect-cost pool. Gamma operates at capacity and allocates all indirect costs using printing machine-hours as the allocation base.

Gamma is concerned about the accuracy of the costs assigned to standard and special jobs and therefore is planning to implement an activity-based costing system.Gamma's ABC system would have the same direct-cost categories as its simple costing system. However, instead of a single indirect-cost pool there would now be six categories for assigning indirect costs: design, purchasing, setup, printing machine operations, marketing, and administration. To see how activity-based costing would affect the costs of standard and special jobs,Gamma collects the following information for the fiscal year 2021 that just ended.

Home Insert Page Layout Formulas Data Review View A B C D E F G H Cause-and-Effect Relationship Between Standard Job Special Job Total Allocation Base and Activity Cost 2 Number of printing jobs 400 200 3 Price per job $ 600 $ 750 4 Cost of supplies per job $ 100 $ 125 5 |Direct labor costs per job $ 90 $ 100 6 Printing machine-hours per job 10 10 7 |Cost of printing machine operations $ 75,000 Indirect costs of operating printing machines B increase with printing machine-hours 9 Setup-hours per job 4 7 10 Setup costs $ 45,000 Indirect setup costs increase with setup-hours 11 Total number of purchase orders 400 500 12 Purchase order costs $ 18,000 Indirect purchase order costs increase with 13 number of purchase orders 14 Design costs $4,000 $16,000 $ 20,000 Design costs are allocated to standard and special 15 jobs based on a special study of the design department Marketing costs as a percentage of 16 revenues 5% 5% $ 19,500 17 Administration costs $ 24,000 Demand for administrative resources increases with direct labor costs