Question

Lillis Manufacturing makes a variety of industrial fittings. The products are similar, but not identical, and all go through the same processes. Some orders from Lillis go to companies in regions with strict environmental regulations. Lillis is required to conduct compliance tests on those orders before shipment. The company produces to order and uses a job costing system. Overhead is applied to jobs based on direct labor cost. The cost analyst at Lillis recently put together an estimate of overhead for the coming year, which is shown in the following table. Category Machining Assembly Setup labor Packaging Compliance testing Total Amount $ 544,000 344,000 464,888 324, eee 244,000 $1,920, eee Three jobs were started and completed in November. Details on the jobs follow. Direct materials Direct labor Number of units Direct labor hours Machine hours Production runs Compliance testing required? Job 1101 Job 1102 Job1103 $ 4,689 $ 6,362 $ 5,375 $11,500 $16,960 $13,975 230 530 430 240 800 360 530 730 630 Yes No Yes

Answer 1

Answer with working notes is given below

a. Using the Current Costing system b. Using the ABC system Job 1101 $220.00 $218.28 Unit Cost Job 1102 $140.00 $127.39 Job 1103 $142.50 $135.66 Predetermined Overhead rate Total Overheads Direct labor cost $1,920,000 640,000 300% of Direct Labor cost Direct labor cost = 16,000* $40 Working note: Direct labor cost Overhead cost Job 1101 $11,500 $34,500 Job 1102 $16,960 $50,880 Job 1103 $13,975 $41,925 Total $42,435 $127,305 a) Unit cost-As per Current Costing system Job 1101 Direct Material $4,600 Direct Labor $11,500 Overhead Applied $34,500 Total manufacturing cost | $50,600 Total units Unit Cost $220.00 Job 1102 $6,360 $16,960 $50,880 $74,200 530 $140.00 Job 1103 $5,375 $13,975 $41,925 $61,275 4301 $142.50 230 Cost Pool Activity Cost pool Machining Assembly Setup Labor Packaging Compliance testing Total Overheads $544,000 $344,000 $464,000 $324,000 $244,000 $1,920,000 Total Activity Activities Rate 27,200 $20.000 Per machine hour 16,000 $21.500 per direct labor hour 80 $5,800.000 per production run 216,000 $1.500 per unit 20 $12,200.000 per order tested Cost Cost Expected use of cost drivers Cost Assigned Assigned Job 1101 Activity- Based Overhead rates $20.00 $21.50 $5,800.00 $1.50 $12,200.00 Machining Assembly Setup Labor Packaging Compliance testing Total Cost assigned Total output Manufacturing cost per unit $10,600 $5,160 $5,800 $345 $12,200 $34,105 230 $148.283 Job 1102 Job 1103 Expected Activity- Expected Activity- use Based use Based of cost Overhead Assigned of cost Overhead drivers rates drivers rates 730 $20.00 $14,600 630 $20.00 800 $21.50 $17,200 360 $21.50 2 $5,800.00 $11,600 1 $5,800.00 530 $1.50 $795 430 $1.50 0 $12,200.00 1 $12,200.00 $44,195 530 $83.387 $0 $12,600 $7,740 $5,800 $645 $12,200 $38,985 430 $90.663 c) Unit cost-As per ABC system Direct Material Direct Labor Overhead Applied Total manufacturing cost Total units Unit Cost Job 1101 $4,600 $11,500 $34,105 $50,205 230 $218.28 Job 1102 $6,360 $16,960 $44,195 $67,515 530 $127.39 Job 1103 $5,375 $13,975 $38,985 As per above working $58,335 430 $135.66