Harris Systems has decided to adopt ABC costing. To remain competitive, Harris Systems€™ management believes the company must produce the type servers produced in Job B at a target cost of $ 5,400. Harris Systems has just joined a B2B e-market site that management believes will enable the firm to cut direct materials costs by 10%. Harris€™s management also believes that a value engineering team can reduce assembly time.
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 retains the current system€™s two direct cost categories. Overhead costs are reflected in the four activities. Pertinent data follow:

Harris Systems has been awarded two new contracts, which will be produced as Job A and Job B. Budget data relating to the contracts follow:

Compute the assembling cost savings required per Job B-type server to meet the $ 5,400 target cost.

Transcribed Image Text:

Predetermined Overhead Allocation Rate Activity Materials handling Machine setup Assembling Shipping Allocation Base Number of parts Number of setups Number of assembling hours Number of shipments 0.85 500.00 80.00 1,500.00 Job A Job B Number of parts Number of setups Number of assembling hours Number of shipments Total direct labor hours Number of units produced Direct materials cost Direct labor cost 15,000 2,000 4 200 1,500 600 10 220,000 30,000 $160,000 12,000 8,000 100