Question

VAL Editing Ev Ev Av Ov А" А В I U Dv Av A Question 2: Job Costing vs. ABC Costing Suggested time: 45 minutes Answer following questions based on the scenario of Zany Brainy: Zany Brainy Corp. manufactures two types of lamps. Home size and Industry size lamps. Company produces 10,000 Home size lamps and 2,000 Industry size lamps. Following is the data provided about these two products, Total Home size lamp S10 $16.00 Industry size lamp $15 $16.00 0.50 0.7 Direct materials per unit Direct manufacturing labour rate per urit Direct labour hours per unit Set up costs Lamps produced per patch Set up hour per patch Advertising Costs $110,000 200 50 1 3 S150 000

Answer 1

Solution:

Requirement (a) Traditional Costing System Calculation of Predeteremined Allocation Rate for Indirect Manufacturing Cost = Total Indirect Manuf. Costs / Direct Labour hours Predetermined Allocation = $260,000 / 6,400 Rate = $40.63 per Direct Labour hours Computation of Total Product Cost per unit for two products Home size Industry size lamp lamp Direct Materials $ 10.00 $ 15.00 Direct Manufacturing Labour Cost $ 16.00 $ 16.00 Indirect Manufacturing Costs (0.50 hrs per unit * $40.63) $ 20.32 (0.70 hrs per unit * $40.63) $ 28.44 Total Product Cost per unit $ 46.32 $ 59.44

Requirement (b) Calculation of Predetermined Allocation rate using Activity Based Costing Indirect Estimated Cost Predetermined Activity Manufacturing Driver allocation Rate Setup Costs $1,10,000 170 $647.06 Advertising Costs $1,50,000 6,400 $23.44 : II +

Formula to allocate Indirect Manufacturig costs Predetermined Estimated Cost Driver allocation rate Allocated Indirect Mfg Cost Setup Costs (50 : 120) Advertising Costs (5,000 : 1,400) Total Indirect manufacturing cost (+) No. of lamps produced Indirect Manufacturing Cost per unit Home Size lamp $32,353 $1,17,200 $1,49,553 10,000 $14.96 Industry Size lamp $77,647 $32,816 $1,10,463 2,000 $55.23

Computation of Total Product Cost per unit for two products Home size Industry size lamp lamp Direct Materials $ 10.00 $ 15.00 Direct Manufacturing Labour Cost $ 16.00 $ 16.00 Indirect Manufacturing Costs (See note) $ 14.96 $ 55.23 Total Product Cost per unit $ 40.96 $ 86.23