Question

Vines Corporation produces custom machine parts on a job order basis. The company has two direct product cost categories: direct materials and direct labour. In the past, indirect manufacturing costs were allocated to products using a single indirect cost pool, allocated based on direct labour hours. The indirect cost rate was $100 per direct labour hour.

The managers of Vines Corporation decided to switch from a manual system to software programs that release materials and that signal machines when to begin working. Simultaneously, the company adopted an activity-based costing system. The manufacturing process has been organized into six activities, each with its own supervisor who is responsible for controlling costs. The following list indicates the activities, cost drivers, and cost allocation rates:

		Cost		Cost per Unit
Activity		Driver		of Cost Driver
Material handling		Number of parts		$	0.40
Milling		Machine hours			36
Grinding		Number of parts			0.70
Assembly		Hours spent in assembly			5
Inspection		Number of units produced			30
Shipping		Number of orders shipped			1,600

The company’s information system automatically collects the necessary data for these six activity areas. The data for two recent jobs follow:

		Job Order
		410			411
Direct materials cost		$	9,100		$	59,400
Direct labour cost		$	600		$	11,950
Number of direct labour hours			30			375
Number of parts			500			2,500
Number of machine hours			200			1,100
Number of job orders shipped			1			1
Number of units			10			240
Number of hours in assembly			3			40

Suppose the company had not adopted an ABC system. Compute the manufacturing cost per unit for job orders 410 and 411 under the old, traditional costing system. (Round answers to 2 decimal places, e.g. 255.66.)

		Job Order
		410		411
Manufacturing cost per unit		$		$

Under the new ABC system, compute the manufacturing cost per unit for job orders 410 and 411. (Round answers to 0 decimal places, e.g. 255.)

		Job Order
		410		411
Manufacturing cost per unit		$		$

Answer 1

1
	Job Order
	410	411
Direct materials cost	9100	59400
Direct labour cost	600	11950
Indirect manufacturing costs	3000	37500
Total manufacturing costs	12700	108850
Divide by Units	10	240
Manufacturing cost per unit	1270.00	453.54
2
	Job Order
	410	411
Direct materials cost	9100	59400
Direct labour cost	600	11950
Indirect manufacturing costs:
Material handling	200	1000
Milling	7200	39600
Grinding	350	1750
Assembly	15	200
Inspection	300	7200
Shipping	1600	1600
Total manufacturing costs	19365	122700
Divide by Units	10	240
Manufacturing cost per unit	1936.50	511.25
Workings:
	Job Order
	410	411
Indirect manufacturing costs:
Material handling	=0.4*500	=0.4*2500
Milling	=36*200	=36*1100
Grinding	=0.7*500	=0.7*2500
Assembly	=5*3	=5*40
Inspection	=30*10	=30*240
Shipping	=1600*1	=1600*1