The Taylor Corporation has a machining facility specializing in jobs for the aircraft- components market. Taylor’s previous simple job- costing system had two direct- cost categories (direct materials and direct manufacturing labor) and a single indirect- cost pool (manufacturing overhead, allocated using direct manufacturing labor- hours). The indirect cost- allocation rate of the simple system for 2013 would have been $ 113 per direct manufacturing labor- hour. Recently a team with members from product design, manufacturing, and accounting used an ABC approach to refine its job- costing system. The two direct- cost categories were retained. The team decided to replace the single indirect- cost pool with five indirect- cost pools. The cost pools represent five activity areas at the plant, each with its own supervisor and budget responsibility. Pertinent data are as follows.

Information- gathering technology has advanced to the point at which the data necessary for budgeting in these five activity areas are collected automatically.
Two representative jobs processed under the ABC system at the plant in the most recent period had the following characteristics:

1. Compute the manufacturing cost per unit for each job under the previous simple job- costing system.
2. Compute the manufacturing cost per unit for each job under the activity- based costing system.
3. Compare the per-unit cost figures for Jobs 410 and 411 computed in requirements 1 and 2. Why do the simple and the activity- based costing systems differ in the manufacturing cost per unit for each job? Why might these differences be important to Taylor Corporation?
4. How might Taylor Corporation use information from its ABC system to better manage itsbusiness?

  • CreatedJanuary 15, 2015
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