Reference no: EM132543894

Lyons, SA, has identified the following overhead costs and activity drivers for next year:

Overhead Item           Expected Cost              Activity Driver                   Expected Qty.

Setup costs                   £150 000                    Number of setups               1 200

Ordering costs                 40 000                       Number of orders                10 000

Maintenance                  200 000                         Machine hours                 16 000

Power                             20 000                             Kilowatt hours            100 000

The following are two of the jobs completed during the year:

                                              JobXX                      JobYY

Direct materials                   £2250                 £2500

Direct labour                       3000                    1875

Units completed                      375                  300

Direct labour hours                  90                    110

Number of setups                        6                    8

Number of orders                          8                 15

Machine hours                             180               150

Kilowatt hours                                90              120

The company's normal activity is 20 000 direct labour hours.

Question (a) Determine the unit cost for each job using direct labour hours to apply overhead.

Question (b) Determine the unit cost for each job using the four activity drivers. (Round amounts to 2 decimal places.)

Question (c) Which method produces the more accurate cost assignment? Why? Explain.