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Question No. 02 (3+6+5=14) The Atlas Corporation has a machining facility specializing in jobs for the aircraft-components market. Atlas's previous simple job-costing system had two
Question No. 02 (3+6+5=14) The Atlas Corporation has a machining facility specializing in jobs for the aircraft-components market. Atlas's previous simple job-costing system had two direct-cost categories (direct materials and direct manufacturing labor) and a single indirect-cost pool (manufacturing overhead, allocated using direct manufacturing labor-hours). The indirect cost-allocation rate of the simple system for 2015 would have been Tk.115 per direct manufacturing labor-hour. Recently a team with members from product design, manufacturing, and accounting used an ABC approach to refine its job-costing system. The two direct-cost categories were retained. The team decided to replace the single indirect-cost pool with five indirect-cost pools. The cost pools represent five activity areas at the plant, each with its own supervisor and budget responsibility. Pertinent data are as follows: 1 Cost Allocation Base Parts Cost Allocation Rate Tk. 0.4 Activity Area Material Handling Lathe Work Milling Grinding Testing Lathe Unit Machine hour Parts Units Tested 0.2 20.00 0.80 15.00 Information-gathering technology has advanced to the point at which the data necessary for budgeting in these five activity areas are collected automatically. Two representative jobs processed under the ABC system at the plant in the most recent period had the following characteristics: Particulars Job 410 Job 411 Direct material cost per Tk. 9,700 Tk. 59,900 job Tk. 750 Direct manufacturing labor cost per job Tk. 11,250 375 Number of direct manufacturing labor- 25 hours per job Parts per job.. 500 Lathe turns per job.... 20,000 Machine-hours per job... 150 Units per job (all units 10 are tested) 2,000 59,250 1,050 200 Required: (1) Compute the manufacturing cost per unit for each job under the previous simple job-costing system. (1) Compute the manufacturing cost per unit for each job under the activity-based costing system (iii) Compare the per-unit cost figures for Jobs 410 and 411 computed in requirements i and ii. Why do the simple and the activity-based costing systems differ in the manufacturing cost per unit for each job? Why might these differences be important to Atlas Corporation
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