Question 2: Job Costing vs. ABC Costing

Suggested time: 45 minutes

Answer following questions based on the scenario of Zany Brainy:

Zany Brainy Corp. manufactures two types of lamps, Home size and Industry size lamps. Company produces 10,000 Home size lamps and 2,000 Industry size lamps. Following is the data provided about these two products:

Home size lamp

Industry size lamp

Total

Direct materials per unit

$10

$15

Direct manufacturing labour rate per unit

$16.00

$16.00

Direct labour hours per unit

0.50

0.7

Set up costs

$110,000

Lamps produced per patch

200

50

Set up hour per patch

1

3

Advertising costs

$150,000

Total indirect manufacturing costs

$260,000

Annual production

10,000

2,000

a. The companys simple (traditional) costing system uses a single indirect-cost pool and allocates costs to the two lamps on the basis of direct manufacturing labour-hours. Under this traditional system, determine total product cost per unit of each of the company's two products. (10 marks)

b. The companys ABC system uses two indirect-cost pools. One cost pool is for set up costs and the other for advertising. Zany Brainy allocates set up costs to the two lamps based on setup labour-hours and advertising costs based on the direct manufacturing labour-hours. Under ABC system, determine total product cost per unit of each of the company's two products. (25 marks)