The Jaffar Company produces lawn mowers and is considering to shift to activity-based costing

The Jaffar Company produces lawn mowers and is considering to shift to activity-based costing. Its controller, Orville Flattengartner, is interested in using a recent order for 100 mowers sold to Davis Lawn and Garder to compare traditional costing with activity-based costing. The costs for this order consist of direct materials of $4,000, purchased parts of $10,000, 120 direct labor hours at an average direct labor pay rate of $20 per hour, and a manufacturing overhead rate of 150% of direct labor costs.

In addition, Orville has collected the following information:

Activity Activity Cost Rate Cost Driver Level
Parts production $5 per machine hour 200 machine hours
Assembly $10 per direct labor hour 120 direct labor hours
Packaging & shipping $15 per unit 100 units
Work cell setup $100 per setup 3 setups

Required:

1) (10 pts) Using the traditional costing approach, a) compute the total production costs and b) product unit cost for the order

2) (10 pts) Using activity-based costing, a)compute the total production costs and b) product unit cost for the order.

3) (5 pts) What is the difference between the product unit cost using the traditional method versus the activity-based costing method? Which method do you think is the better representation of "true costs"? Why?

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3-33 (Job costing for services) The Hillman Company sells and services lawn mowers snow blowers and other equipment

3-33 (Job costing for services) The Hillman Company sells and services lawn mowers snow blowers and other equipment. The service department uses job order cost system to determine costs of each job, such as oil changes, tune-ups, and repairs. The department assigns conversion costs through a cost driver rate on the basis of direct labor hours. The cost driver rate additionally includes a markup of 25% on the job’s conversion costs in order to provide a reasonable profit for Hillman. The customer’s invoice itemizes prices for parts and labor, where the stated labor rate is the department’s cost driver rate that includes direct labor cost, assigned overhead costs, and the 25% markup on conversion costs. Hillman Company’s service department estimated the following information for 2006. Salaries of mechanics $120,000 Fringe benefits 54,000 General and administrative 18,000 Depreciation 42,000 Billable direct labor hours 4,500
a. Determine Hillman Company’s service department’s cost driver rate to be used to assign conversion costs on the basis of billable direct labor hours.
b. Job 254 required $47.40 of materials and 0.7 direct labor hours. Determine the price changed for job 254.

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