The Hull Division manufactures several variants of its main chemical industrial Product. The division decided long term ago to work under a Job Costing approach, due to its clients type of orders and its consequential diversified contracts been signed. Susan Smith, the General Division Manager, and Steve Willmore, Hulls Division Controller, were reasonably satisfied with this accounting method used in their analytical reports and controls.

Each product variant within the Hull Division passes through two production departments. According to Steves reports, these two departments have the following cost structures:

TABLE 1: HULLs Departmental Cost Structure

Department A Department B

Normal monthly volume

(base for overhead rate) . 5,000 direct 10,000 pounds

labor-hours of materials

Monthly fixed costs at normal volume . $10,000 $40,000

Monthly variable costs at normal volume .. 15,000 20,000

Two job orders that went through the factory last month had the following results, that were reported to Susan:

TABLE 2: HULL DIVISION LAST MONTH JOB ORDERS

Job 1 (Variant X1) Job 2 (Variant X2)

Quantity Cost Quantity Cost

Direct Inputs

Direct materials ------------------------------- 480 lbs. $2,400 1,500 lbs. $4,800

Direct Labor:

Department A 180 hrs. 1,620 100 hrs. 900

Department B 60 hrs. 420 40 hrs. 280

Output . 600 units 1,000 units

Susan wanted to fully understand the monthly job costs of the Hull Division on a per unit cost view. She asked Steve to report the following information to ground her decision, which was to be proposed to the General Manager that sit in the US Headquarters of the Division:

Calculate the unit cost of each of these jobs on a full-costing basis.

Recalculate unit costs on a variable-costing basis.

c. Why are the relative variable costs of these two products so different from their relative full costs? Susan must be sure on this point, before she talks to her GM.