Comprehensive ABC (Learning Objectives 2 &3) Workflow Systems specializes in ser

Question

Comprehensive ABC (Learning Objectives 2 &3) Workflow Systems specializes in servers for work-group, e-commerce, and enterprise resource planning (ERP) applications. The company's original job cost system has two direct cost categories: direct materials and direct labor. Overhead is allocated to jobs at the single rate of $27 per direct labor hour. A task force headed by Workflow's CFO recently designed an ABC system with four activities. The ABC svstem retains the current system's two direct cost categories. Thus, it budgets only overhead costs for each activity. Pertinent data follow: Activity Allocation Base Cost Allocation Rate Materials handling Number of parts $1.10 Machine setup Number of setup:s $470.00 Assembling Assembling hours $120.00 Shipping Number of shipments $1,280.00

Explanation / Answer

1. Traditional Costing System:

2. Activity Based Costing:

3. The ABC system assigns costs more accurately to jobs, as a cause and effect relationship exists between the each cost pool and the respective cost allocation base. The premise is that jobs consume activities, and activities consume resources. Therefore, an attempt is made to trace the costs to each activity.

4. Original system: Outsource both jobs.

ABC system : Outsource only Job B.

Outsourcing Job B only would lead to more income, as producing Job A inhouse would result in better recovery of fixed overheads.

Job A Job B Direct Materials Cost $ 195,700 $ 100,640 Direct Labor Cost 155,000 25,000 Overhead ( Direct labor hours x $ 27) 267,300 23,760 Total Manufacturing Cost $ 618,000 $ 149,400 Number of Output Units 100 20 Product Cost per Unit $ 6,180 $ 7,470

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.