Activity Based Costing (ABC) & Activity Based Management (ABM)

uestion1 AirCom Corporation has a machining facility specializing in work for the aircraft components market. The prior job-costing system had two direct-cost categories (diredct materials and direct labor) and a single indirect-cost pool (manufacturing overhead, allocated using direct labor hours). The indirect-cost allocation rate for the year amounted to RM115 per direct labor hour Recently, the management is considering implementing a general policy to discontinue any job whose gross profit margin percentage below 10 percent. In order to implement this, the management believes that accurate cost allocation is very important. Therefore, a team with members from product design, manufacturing and accounting has been asked to develop an activity based approach to refine the company's job-costing. The team has proposed the following five cost pool, each with its own supervisor and budget responsibility: Cost driver used asCost driver Activity areao Materials handlin Lathe work Millin Grindin Testin allocation base Parts Turns Machine hours Parts Units rate- RM0.40 RM0.20 RM20.00 RM0.80 RM15.00 Two representative jobs processed under the new system at the facility in the most recent period has the following characteristics: Job 454 Job 455 RM59,900 RM750RMI11,250 375 hours 2,000 parts 20,000 turns60,000 turns 1,050 hours 200 units RM9,700 Direct materials cost Direct labor cost per job Direct labor hours per job Parts per job Turns per Machine hours Units 25 hours 500 parts 150 hours 10 units ob