Question
In the past, the Larrys Lawnmowers Ltd. (LLL) allocated indirect manufacturing costs based on direct labour hours. Recently, management has decided to pilot a system
In the past, the Larrys Lawnmowers Ltd. (LLL) allocated indirect manufacturing costs based on direct labour hours. Recently, management has decided to pilot a system of time-driven activity-based costing to allocate these costs. The division produces two lawnmower models: Lo-cost and Deluxe. The following information has been obtained from the companys records over the past year:
| Lo-cost | Deluxe |
Units produced | 500,000 | 50,000 |
Direct labour hours incurred | 200,000 | 40,000 |
Inspections per lawnmower | 2 | 4 |
Time for each inspection (hrs.) | .1 | .3 |
Lawnmowers packed and shipped per batch | 2,000 | 500 |
Individual lawnmower packing time (hrs.) | .25 | .4 |
Additional preparation time per batch (hrs.) | 30 | 15 |
LLL employs 245 employees to perform indirect labour functions, rotating among machine setups, final inspections and shipping. Each employee is paid $50,000 per year on average, including benefits. On average, each employee works 1,600 hours per year.
200 automated production machines are leased for $14,000,000 in total each year. Each machine is available for 1,600 hours per year, including set up time. Once a machine is set up, no labour is necessary to oversee it. Machine-related information for the year is as follows:
| Lo-cost | Deluxe |
Machine hours per lawnmower | .4 | .6 |
Set up time per run (hrs.) | 300 | 600 |
Number of production runs | 100 | 50 |
Required:
- (7 marks). Determine the amount of indirect manufacturing costs allocated to one lawnmower of each type (Lo-cost, Deluxe) based on the existing cost allocation basis (direct labour hours).
- (12 marks) Determine the indirect manufacturing support costs for one lawnmower of each type using time-driven activity-based costing. Use the following format. Show supporting calculations separately.
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