Compute the unit manufacturing cost of each job

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Question - Hopson Inc. uses a volume-based costing system that applies overhead cost based on direct labor hours at $250 per direct labor hour. The company is considering adopting an activity-based costing system with the following data:

Activity Area

Cost Driver

Cost Driver Rate

Materials handling

# of parts

2.5

Machine runs

# of turns

0.6

Milling

# of machine hours

20.0

Grinding

# of parts

1.5

Testing

# of units tested

15.0

The two jobs processed in the month of June had the following characteristics:

 

Job 101

Job 102

Direct material costs

$20,000

$60,000

Direct labor costs

$2,000

$30,000

# of direct labor hours

50

500

# of parts

1,000

3,000

# of turns

20,000

50,000

# of machine hours

150

1,000

# of units tested

20

250

Required -

a. Compute the unit manufacturing cost of each job under the firm's current volume-based costing system.

b. Compute the unit manufacturing cost of each job under the activity-based costing system.

c. Compare the unit manufacturing cost for Jobs A and B computed in requirements 1 and 2.

d. Why do the two cost systems differ in their total cost for each job?

e. Why might these differences be important to the Company?

Reference no: EM133088249

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