Reference no: EM13378110

1. In the past, the Roils Royally Engine Division (Roils) allocated indirect manufacturing costs based on direct labour hours. Recently, management has decided to pilot a system of time-driven activity-based costing (TDABC) to allocate these costs. The division produces three engine models: Basic, Sport, and Heavy Duty. Roils employs 300 employees to perform indirect labour functions, consisting of machine setups, engine inspections and shipping. Each employee is paid $50,000 per year on average, including benefits. On average, each employee works 1,600 hours per year. Each automated production machine is used 1,600 hours per year, including set up time. Once a machine is set up, no labour is necessary to oversee it.

The following information has been obtained from the company's records over the past year:

	Basic	Sport	Heavy Duty
Units produced	500,000	150,000	50,000
Direct material cost per unit	$40	$50	$60
Direct labour cost per hour	$30	$30	$30
Direct labour hours incurred	200,000	225,000	40,000
Inspections per engine	2	3	4
Inspection time per engine (hrs.)	.1	.2	.3
Engines packed and shipped per batch	2,000	1,000	500
Individual engine packing time (hrs.)	.25	.3	.4
Additional preparation time per batch (hrs.)	30	20	15
Machine set-ups per year	240	180	60
Labour hours for each machine set-up	30	40	60

Required

a. Determine the indirect labor support costs for each engine using time-driven activity-based costing.

b. Determine the per cent of unused indirect labour compared to available indirect labour hours. Draw conclusions from this analysis.