Question

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:

Home size lamp

Industry size lamp

Total

Direct materials per unit

$10

$15

Direct manufacturing labour rate per unit

$16.00

$16.00

Direct labour hours per unit

0.50

0.7

Set up costs

$110,000

Lamps produced per patch

200

50

Set up hour per patch

1

3

Advertising costs

$150,000

Total indirect manufacturing costs

$260,000

Annual production

10,000

2,000

a. The company’s simple (traditional) costing system uses a single indirect-cost pool and allocates costs to the two lamps on the basis of direct manufacturing labour-hours. Under this traditional system, determine total product cost per unit of each of the company's two products. (10 marks)

b. The company’s ABC system uses two indirect-cost pools. One cost pool is for set up costs and the other for advertising. Zany Brainy allocates set up costs to the two lamps based on setup labour-hours and advertising costs based on the direct manufacturing labour-hours. Under ABC system, determine total product cost per unit of each of the company's two products. (25 marks)

Answer 1

J1 С B D E А Home bsize Lamp Industry size Lamp Total 100000 30000 130000 160000 28000 188000 203125 56875 260000 463125 114875 578000 10000 2000 12000 46.3125 57.4375 103.75 2 Particulars 3 Direct Material(unit*price) 4 Direct Manufacturing Labour Cost(unit*Rate) 5 Indirect Costs 6 Total Product Cost 7 No of units 8 Product cost per unit 9 10 11 NOTE(1): 12 No of units 13 Manufacturing labour hour per unit 14 Direct manufacturing labor hours 15 Predetermined overhead rate = Total Indirect Manufacturing cost/Total manufacturing Hours 16 = 260000/6400 = 40.625 per hour 17 Indirect cost assigned (direct manufacturing labor hours*predetermined rate per hour) 18 19 NOTE(2) All amounts are in $. 20 Please give THUMBS UP. 21 Home bsize Lamp Industry size Lamp Total 10000 2000 0.5 0.7 5000 1400 6400 40.625 $56875 40.625 $260000 $203125

А B D C С Home bsize Lamp Industry size Lamp Total 100000 30000 130000 160000 28000 188000 1 (b) 2 Particulars 3 Direct Material(unit*price) 4 Direct Manufacturing Labour Cost(unit*Rate) 5 Indirect Costs: 6 Set up cost 7 Advertising cost 8 Total Product Cost 9 No of units 10 Product cost per unit 11 32353 117187.5 409540.5 77647 110000 32812.5 150000 168459.5 578000 2000 12000 84.22975 125.1838 10000 40.95405 12 13 Home bsize Lamp Industry size Lamp Total 10000 2000 200 50 50 40 1 3 50 120 170 32353 77647 110000 14 15 NOTE(1): 16 17 No of units 18 Unit per patchj/lot 19 No of Patches/lots 20 Set up hour per patch/lot 21 Set up Labor hours 22 Setup cost assigned = Total setup cost/no of setup labor hours* no of lot in activity 23 24 NOTE(2): 25 26 No of units 27 Direct labor hour per unit 28 Total labor hours 29 Advertising cost = Advertising cost/Total labor hours* hours per activity 30 NOTE(3) All amounts are in $. 31 Please give THUMBS UP 32 Home bsize Lamp Industry size Lamp Total 10000 2000 0.5 0.7 5000 1400 6400 117187.5 32812.5 150000