Q1.

York Industries specializes in developing complex, custom machinery for production.

The company's original job cost system has two direct cost categories; direct materials and direct labour.

Overhead is allocated to jobs at the single rate of $25 per direct labour hour.

The standard direct labourer makes $20 per hour of work, including all benefits.

The CEO is considering switching to activity-based costing.

The ABC system retains the current system's two direct cost categories. Thus, it budgets only overhead costs for each activity. Important information is as follows:

Activity Allocation Base Estimated OH Activity

Materials handling Number of parts $85,000 1,00,000

Machine set-up Number of Set-ups $5,00,000 1,000

Assembling Assembly hours $8,00,000 10,000

Shipping Number of shipments $3,00,000 200

York Industries has two new jobs to be produced, JOB 1 and JOB 2

Budget data relating to the contracts are as follows:

Job 1 Job 2

Number of parts 15,000 2,000

Number of setups 6 4

Number of assembly hours 1,500 200

Number of shipments 1 1

Total direct labour hours 8,000 600

Number of output units 100 10

Direct Materials cost $2,10,000 $30,000

1) Compute the product cost per unit for each job using the original costing system.

2) Compute the cost using the ABC system.

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