Harris systems specializes in servers for workgroup,e-commerce, and ERP applications.The company's original job costing system has two direct cost categories:direct materials and direct labor.Overhead is allocated to jobs at the single rate of $22 per direct labor hour.A task force headed by Harris's CFO recently designed an ABC system with four activities.The ABC system remains 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 $ 0.85
- Machine setup Number of setup 500
- Assembling Assembling hours 80
- Shipping Number of shipment 1,500
Harris systems has been awarded two new contracts, which will be produced as Job A and B.Budget data relating to the contract follow:
- Job A Job B
- number of parts 15,000 2,000
- number of setups 6 4
- number of assembling hours 1,500 200
- number of shipments 1 1
- total direct labor hour 8,000 600
- number of output units 100 10
- direct materials cost 220,000 30,000
- direct labor cost 160,000 12,000
Requirement:
1.compute the product cost per unit for each job,using the original costing system(with two direct cost categories and a single overhead allocation rate).
2. suppose Harris systems adopts the ABC system.compute cost per unit for each job using ABC.
3. which costing system more accurate assigns to jobs the costs of the resource consumed to produce them?Explain.
4. A dependable company has offered to produce both jobs for Harris for $5,400 per output units. Harris may outsource(but from the outside company)either Job A only,Job B only,or both job.which course of action will Harris's managers take if they base their decision on (a) the original system?(b)ABC system costs? which course of action will yield more income?explain.