The current manufacturing costing systems of Tracy Corporation has two direct product cost categories (direct material and direct labour). Indirect manufacturing costs are applied to products using a single indirect pool. The indirect manufacturing cost application base is direct labour hours; the indirect cost rate is $115 per direct labour hour.

Tracy ltd is switching from a labour paced to a machine paced manufacturing approach at its aircraft components plant. Recently, the plant manager set up five activity areas, each with its' own supervisor and budget responsibility. Pertinent data follows:

Activity area

Cost driver used as indirect cost application base

Cost per unit of application base

Material handling

Number of parts

$ 0.4

Lathe work

Number of turns

$ 0.2

Milling

Number of machine hours

$ 20

Grinding

Number of parts

$ 0.8

Shipping

Number of orders shipped

$ 1,500

Information technology has advanced to the point where all the necessary data for budgeting in these five activity area are automatically collected. The two job orders processed under the new system at the aircraft component plant in the most recent period had the following characteristics:

Job order 410

Job order 411

Direct materials cost per job

$ 9,700

$ 59,900

Direct labour cost per job

$ 750

$ 11,250

Number of direct labour hours per job

25

375

Number of parts per job

500

2,000

Number of turns per job

20,000

60,000

Number of machine hoursper job

150

1,050

Number of job orders shipped

1

1

Number of units in eachjob

10

200

Required:

1.Compute the per unit manufacturing cost of each job under the existing manufacturing costing system (that is, indirect cost are collected in a single cost pool with direct labour as the application base).

2.Assume that Tracy ltd adopts an activity based accounting system. Indirect costs are applied to products using separate indirect cost pools for each of the five activity areas (material handling, lathe work, milling, grinding, and shipping). The application base and rate for each activity area are described in the problem. Compute the per unit manufacturing cost of each job under the activity based accounting system.

3.Compare the per unit cost figures for job order 410 and 411 computed in requirements 1 and 2. Why do they differ? Why might these differences be important to Tracy Corporation?