Question

Activity-based job-costing system. Henriksen AS manufactures and sells packaging machines. It recently used an activity-based approach to refine the job-costing system at its Vejle plant. The resulting job-costing system has one direct-cost category (direct materials) and four indirect manufacturing cost pools. These four indirect- cost pools and their allocation bases were chosen by a team of product designers, manufacturing personnel and marketing personnel: Cost-allocation base Indirect manufacturing cost pool Budgeted cost- allocation rate 1. Materials handling 2. Machining 3. Assembly 4. Inspection Component parts Machine-hours Assembly line-hours Inspection hours Dkr 8 per part DK 68 per hour Dkr 75 per hour Dkr 104 per hour Langeland recently purchased 50 can-packaging machines from Henriksen AS. Each machine has direct materials costs of Dkr 3000, requires 50 component parts, 12 machine hours, 15 assembly hours and 4 inspection hours. Henriksen's prior costing system had one direct cost category (direct materials) and one indirect cost category (manufacturing overhead, allocated using assembly hours). Required 1 Present overview diagrams of the prior job-costing system and the refined activity based job-costing system. 2 Calculate the unit manufacturing costs (using ABC) of each machine and the total manufacturing cost of the Langeland job. 3 The activity-based job-costing system of Henriksen has only one manufacturing direct-cost category: direct materials. A competitor of the Henriksen Company has two direct-cost categories at its manufacturing plant direct materials and direct manufacturing labour. Why might Henriksen not have a direct manufacturing labour costs category in its job-costing system? Where are the manufacturing labour costs included in the Henriksen costing system? 4 What information might members of the team that refined the prior costing system find useful in the activity-based job-costing system?

Answer 1

Answer desired for Q3, so
Answer 3) The Henriksen is not having a direct manufacturing
labour costs category in its job-costing system due to:
a) Automatic Henriksen packaging machine, so no direct labour required.
b) all labour is applied in overhead activities ie. material handling,
machining, Assembling jobs and inspection.
All the manufacturing labour costs are included under the
overhead activities ie. material handling, machining, Assembling
jobs and inspection.