Reference no: EM13183650

Galvaset Industries manufactures and sells custom-made windows. Its job casting system was designed using an activity-based casting approach. Direct materials and direct labor costs are accumulated separately, along with information concerning three manufacturing overhead cost drivers (activities). Assume that the direct labor rate is $20 per hour and that there were no beginning inventories. The following information was available for 2010, based on an expected production level of 50,000 units for the year, which will require 200,000 direct labor hours:

            Activity                  Budgeted                      Cost Driver Used                                Cost

        (Cost Driver)             Cost for 2010              as Allocation Bas               Allocation Rate

Materials handling                  $  325,000                    Number of parts used             $ 0.25 per part

Cutting and lathe work            2,340,000                     Number of parts used               1.80 per part

Assembly and inspection         5,000,000                     Direct labor hours                  25.00 per hour

The following production, costs, and activities occurred during the month of March:

Units                           Direct                          Number                      Direct

Produced                Materials Costs            of Parts Used             Labor Hours

3,800                           $142,000                     83,600                        17,180  

 Required:

1. Calculate the total manufacturing costs and the cost per unit of the windows produced during the month of March (using the activity-based costing approach).
2. Assume instead that Galvaset Industries applied manufacturing overhead on a direct labor basis (rather than using the activity-based costing system previously described). Calculate the total manufacturing cost and the cost per unit of the windows produced during the month of March. (Hint: You will need to calculate the predetermined overhead application rate using the total budgeted overhead coasts for 2010.)
3. Compare the per unit costs figures calculated in parts a and b. Which approach do you think provides better information for manufacturing managers? Explain your answer.