Vines Corporation produces custom machine parts on a job order basis. The company has two direct product cost categories: direct materials and direct labor. In the past, indirect manufacturing costs were allocated to products using a single indirect cost pool, allocated based on direct labor hours. The indirect cost rate was $115 per direct labor hour.
The managers of Vines Corporation decided to switch from a manual system to software programs that release materials and signal machines when to begin working. Simultaneously, the company adopted an activity-based costing system. The manufacturing process has been organized into six activities, each with its own supervisor who is responsible for controlling costs. The following list indicates the activities, cost drivers, and cost allocation rates.

The company’s information system automatically collects the necessary data for these six activity areas. The data for two recent jobs follow:

A. Suppose the company had not adopted an ABC system. Compute the manufacturing cost per unit for Job Orders 410 and 411 under the old, traditional costing system.
B. Under the new ABC system, compute the manufacturing cost per unit for Job Orders 410 and 411.
C. Compare the costs per unit for Job Orders 410 and 411. Explain why the cost per unit under the traditional costing system is different from cost per unit under the ABC system.
D. Explain why the choice of cost drivers for each activity may be unclear.
E. Identify and explain to Vine Corporation’s managers the possible advantages and disadvantages of adopting the ABCsystem.

  • CreatedJanuary 26, 2015
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