Activity-based job c o s

Activity-based job c o s

Aircomposystèmes SA has a machining facility specialising in work for the aircraft compo- nents market. The prior job-costing system had two direct-cost categories (direct materials and direct manufacturing labour) and a single indirect-cost pool (manufacturing overhead, allocated using direct labour-hours). The indirect cost-allocation rate of the prior system for the year would have been SFr 115 per direct manufacturing labour-hour. Recently, a team with members from product design, manufacturing and accounting used an activity-based approach to refine its job-costing system. The two direct-cost categories were retained. The team decided to replace the single indirect-cost pool with five indirect-cost pools. These five cost pools represent five activity areas at the facility, each with its own supervisor and budget responsibility. Pertinent data are as follows:

Activity area	Cost driver used as allocation base	Cost-allocation rate
Materials handling	Parts	SFr 0.40
Lathe work	Turns	0.20
Milling	Machine-hours	20.00
Grinding	Parts	0.80
Testing	Units tested	15.00

Information-gathering technology has advanced to the point where all the data necessary for budgeting in these five activity areas are automatically collected. Two representative jobs processed under the new system at the facility in the most recent period had the fol- lowing characteristics:

	Job 410	Job 411
Direct materials cost per job	SFr 9 700	SFr 59 900
Direct manufacturing labour cost per job	750	11 250
Direct manufacturing labour-hours per job	25	375
Parts per job	500	2 000
Turns per job	20 000	60 000
Machine-hours per job	150	1 050
Units per job	10	200

Required

1 Calculate the per unit manufacturing costs of each job under the prior job-costing system.

2 Calculate the per unit manufacturing costs of each job under the activity-based job- costing system.

3 Compare the per unit cost figures for Jobs 410 and 411 calculated in requirements 1 and

2. Why do the prior and the activity-based costing systems differ in their job cost esti- mates for each job? Why might these differences be important to Aircomposystèmes?

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