Case 1. Harris Systems specializes in servers for workgroup e-commerce, and ERP applicat...

Case 1. Harris Systems specializes in servers for workgroup e-commerce, and ERP applications. The company’s original job costing system has two direct cost categories direct materials and direct labor. Overhead is allocated to jobs at the single rate of $22 per direct labor hour.

A task force headed by Harris’s CFO recently designed an ABC system with four activities. The ABC system retains the current system’s two direct cost categories. Thus, it budgets only overhead costs for each activity. Pertinent data follow:

Requirements

1. Compute the product cost per unit for each job, using the original costing system (with two direct cost categories and a single overhead allocation rate).

2. Suppose Harris Systems adopts the ABC system. Compute the product cost per unit for each job using ABC.

3. Which costing system more accurately assigns to jobs the costs of the resources consumed to produce them? Explain.

4. A dependable company has offered to produce both jobs for Harris for $5,400 per output unit. Harris may outsource (buy from the outside company) either job A only, Job B only, or both jobs. Which course of action will Harris’s managers take if they base their decision on (a) the original system? (b) ABC system costs? Which course of action will yield more income? Explain.