Reference no: EM132078338

Question - Activity Based Costing

The Try Corporation has a machining facility specializing in jobs for the aircraft-components market. Try's previous simple job-costing system had two direct-cost categories (direct materials and direct manufacturing labor) and a single indirect-cost pool (manufacturing overhead, allocated using direct manufacturing labor-hours). The indirect cost-allocation rate of the simple system for 2016 would have been $115 per direct manufacturing labor-hour.

Recently a team with members from product design, manufacturing, and accounting used an ABC approach to refine its job-costing system. The two direct-cost categories were retained. The team decided to replace the single indirect-cost pool with five indirect-cost pools. The cost pools represent five activity areas at the plant, each with its own supervisor and budget responsibility. Pertinent data are as follows:

Required:

1. Compute the manufacturing cost per unit for each job under the previous simple job-costing system.

2. Compute the manufacturing cost per unit for each job under the activity-based costing system.

3. Compare the per-unit cost figures for Jobs 410 and 411 computed in requirements 1 and 2. Why do the simple and the activity-based costing systems differ in the manufacturing cost per unit for each job? Why might these differences be important to Try Corporation?