Question 2 JOB COSTING AND ACTIVITY-BASED COSTING (16 MARKS) Little Hands Limited manufactures wooden toys. The company currently allocates overhead based on direct labour hours. Total budgeted overhead for 2019 is $500,000 and total budgeted direct labour is $450,000. Employees making the toys are paid $18 per hour. Little Hands Ltd is investigating Activity based Costing (ABC) as an alternative to allocating its overhead costs. Cost pools and cost drivers have been developed and are shown in Exhibit 4. TURN OVER 8 ACCT222 Exhibit 4 Activity Cost Pools and Cost Drivers for Little Hands Ltd, 2019 y cost Activity Cost Pool Budgeted Activity Cost Budgeted Level of Overhead Cost Driver Activity Driver Machine Setups $192,000 Setups 4 setups/day for 300 days (MS) Material Handling $78,000 Metres of wood 4,000 metres (MH) Varnishing and $84,000 Coats of varnish 75 coats/day for 320 days Finishing (V&F) Quality Control $36,000 Inspections 3 inspections/day for 320 (QC) days Other overhead $110,000 Machine Hours 50,000 machine hours TOTAL $500,000 Little Hands Ltd wants to evaluate the effect of ABC on the costing of two of its jobs in 2019, Job 104 which is for 100 train sets, and Job 105 which is for 150 wooden puppets. Details of these two jobs are contained in Exhibit 5. Exhibit 5 Details for Jobs 104 and 105 Inputs Job 104 Job 105 Direct Materials 12 metres @ $80 per metre 10 metres @ $85 per metre Direct Labour 200 hours 180 hours Number of setups 2 days of setups 3 days of setups Number of coats of 3 days of varnishing 2 days of varnishing varnish Number of inspections 14 8 Number of machine hours 150 75 Required: (a) Calculate the total cost of Job 104 and Job 105 using the current system. (4 marks) (b) Calculate the total cost of Job 104 and Job 105 using Activity Based Costing. (10 marks) (c) Compare and discuss your results for parts (a) and (b) of this question. (2 marks) TURN OVER