Hicks Inc. uses the job order costing system. The company has been using a traditional costing system, which is manual using job order cost sheets, for many years, with manufacturing overhead allocated using direct labour hours. Total direct labour hours are estimated to be 50,000 for the upcoming year.

Management is considering switching to software programs that release materials and signals machines when to begin working. They also plan to adopt an activity-based costing system at the same time. The factory is divided into six activities, each with its own supervisor who is responsible for controlling costs. The following information is available for the upcoming year: The company has the following information available for two of the jobs they plan to complete:

R E Q U I R E D A. Suppose the company had not adopted an ABC system. Compute the manufacturing cost per unit for each of the jobs they plan to complete using the traditional costing system. B. If the company adopted an activity-based costing system, what would be the cost of each of the jobs? C. Compute the cost per unit for each job. Explain why the cost per unit under traditional costing system is different. D. Explain why uncertainties may exist about the choice of cost drivers for each activity.

E. Identify and explain to management the possible advantages and disadvantages of adopting an activity-based costing system.

Total Dollar Cost Driver Amount Material handling Milling Grinding Assembly Inspection Shipping $960,000 Number of parts $420,000 Machine hours $1,920,000 Number of parts $28,500 Hours spent in assembly $950,000 Number of units produced $1,425,000 Number of orders shipped Cost Driver 2,400,000 21,000 2,400,000 5,700 38,000 950 The company has the following information available for two of the jobs they plan to complete: Job A284 Job A285 $9,700 $59,900 $750 $11,250 25 375 500 2000 Direct materials cost Direct labour cost Number of direct labour hours Number of parts Number of machine hours Number of job orders shipped Number of units Number of hours in assembly 150 1050 1 1 10 200 2 30