Question
Lillis Manufacturing makes a variety of industrial fittings. The products are similar, but not identical, and all go through the same processes. Some orders from
Lillis Manufacturing makes a variety of industrial fittings. The products are similar, but not identical, and all go through the same processes. Some orders from Lillis go to companies in regions with strict environmental regulations. Lillis is required to conduct compliance tests on those orders before shipment. The company produces to order and uses a job costing system. Overhead is applied to jobs based on direct labor cost. The cost analyst at Lillis recently put together an estimate of overhead for the coming year, which is shown in the following table.
Category Amount Machining $ 1,024,000 Assembly 824,000 Setup labor 944,000 Packaging 804,000 Compliance testing 724,000 Total $ 4,320,000 Three jobs were started and completed in November. Details on the jobs follow. Job 1101 Job 1102 Job1103 Direct materials $ 6,600 $ 7,560 $ 6,625 Direct labor $ 16,500 $ 20,160 $ 17,225 Number of units 330 630 530 Direct labor hours 240 800 360 Machine hours 630 830 730 Production runs 1 2 1 Compliance testing required? Yes No Yes
Lillis is considering adopting an activity-based costing system. The cost analyst has studied the system and has recommended the following cost drivers for each of the overhead categories. She has also estimated the annual volume for each of the cost drivers. This information follows.
Overhead Category Cost Driver Annual Cost Driver Volume Machining Machine hours 51,200 machine-hours Assembly Direct-labor hours 16,000 direct-labor hours Setup labor Production runs 80 production runs Packaging Units 536,000 units Compliance testing Orders tested 20 orders tested The average direct labor rate at Lillis is $90 per hour.
Required: a. What is the unit cost for each of the three jobs started and completed assuming Lillis uses their current costing system? (Round your answers to 2 decimal places.) b. What is the unit cost for each of the three jobs started and completed assuming Lillis adopts the ABC system as designed by the cost analyst? (Do not round intermediate calculations. Round your final answers to 2 decimal places.)
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