The Tsang Manufacturing Company has two producing departments, machining and assembly. Mr. Tsang recently automated the machining department. The installation of a computer-aided manufacturing (CAM) system, together with robotic workstations, drastically reduced the amount of direct labour required. Meanwhile, the assembly department remained labour intensive.

The company had always used one firm-wide rate based on directlabour- hours as the cost-allocation base for applying all costs (except direct materials) to the final products.

Mr. Tsang was considering two alternatives: (1) continue using direct labour- hours as the only cost-allocation base, but use different rates in machining and assembly, and (2) use machine-hours as the cost allocation base in the machining department while continuing with direct-labour-hours in assembly.

Budgeted data for 2010 are

1. Suppose Tsang continued to use one firm wide rate based on direct labour- hours to apply all manufacturing costs (except direct materials) to the final products. Compute the cost-application rate that would be used.
2. Suppose Tsang continued to use direct-labour-hours as the only cost-allocation base but used different rates in machining and assembly.
a. Compute the cost-application rate for machining.
b. Compute the cost-application rate for assembly.

3. Suppose Tsang changed the cost accounting system to use machine-hours as the cost-allocation base in machining and direct labour- hours in assembly.
a. Compute the cost-application rate for machining.
b. Compute the cost-application rate for assembly.

4. Three products use the following machine-hours and direct-labourhours.

a. Compute the manufacturing cost of each product (excluding direct materials) using one firmwide rate based on directlabour- hours.
b. Compute the manufacturing cost of each product (excluding direct materials) using direct-labour-hours as the costallocation base, but with different cost-allocation rates in machining and assembly.
3. Compute the manufacturing cost of each product (excluding direct materials) using a cost-allocation rate based on directlabour- hours in assembly and machine-hours in machining.
4. Compare and explain the results in requirements 4a, 4b, and 4c.

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Machining Assembly Total Total cost (except direct materials) $585,000 Machine-hours $495,000 $1,080,000 97,500 105,000 Direct-labour-hours 15,000 30,000 45,000 Direct-Labour- Direct-Labour- Machine-Hours Hours in Hours in in Machining Machining Assembly Product 12.0 1.0 14.0 A Product 17.0 1.5 3.0 Product 14.0 1.3 8.0