Grand Erie Firm produces and sells a wide variety of products. Two of its most popular...

   
 

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Grand Erie Firm produces and sells a wide variety of products. Two of its most popular products are Whozits and Whatzits. The firm currently uses a traditional job costing system. For many years, the OH application base was direct labour hours. Recently, management made the decision to change to machine hours as the OH application base. Costs of production runs (each with the same number of units) for the two products were compared to assess the new costing system. The cost information using the two different OH application bases follows. Machine hours DM DL OH Job cost Whatzits Whozits 5,460 9,870 3,260 5,940 1,677 3,074 $ 10,397 $ 18,884 ABC DM DL OH Whozits DL hours Whozits DM After looking at the information, management was unsure if the new costing system was better. In order to get a better idea of which OH application base provides the best results, the same production runs were costed using ABC. Three cost pools were used: machining, direct labour and materials handling. The results follow. 5,460 3,260 Whatzits 5,460 9,870 DL 3,260 5,940 OH 436 793 Job Cost $ 9,156 $ 16,603 Whatzits 9,870 5,940 Grand Erie Firm produces and sells a wide variety of products. Two of its most popular products are Whozits and Whatzits. The firm currently uses a traditional job costing system. For many years, the OH application base was direct labour hours. Recently, management made the decision to change to machine hours as the OH application base. Costs of production runs (each with the same number of units) for the two products were compared to assess the new costing system. The cost information using the two different OH application bases follows. Machine hours DM DL OH Job cost Whatzits Whozits 5,460 9,870 3,260 5,940 1,677 3,074 $ 10,397 $ 18,884 ABC DM DL OH Whozits DL hours Whozits DM After looking at the information, management was unsure if the new costing system was better. In order to get a better idea of which OH application base provides the best results, the same production runs were costed using ABC. Three cost pools were used: machining, direct labour and materials handling. The results follow. 5,460 3,260 Whatzits 5,460 9,870 DL 3,260 5,940 OH 436 793 Job Cost $ 9,156 $ 16,603 Whatzits 9,870 5,940

Answer rating: 100% (QA)

1 The apparent increase in the cost of both jobs after changing the overhead OH application base from direct labor hours DLH to machine hours MH can b... View the full answer