Activity-based job- c o s ting sy s tem

Activity-based job- c o s ting sy s tem

Henriksen AS manufactures and sells packaging machines. It recently used an activity- based approach to refine the job-costing system at its Vejle plant. The resulting job-costing system has one direct-cost category (direct materials) and four indirect manufacturing cost pools. These four indirect-cost pools and their allocation bases were chosen by a team of product designers, manufacturing personnel and marketing personnel:

Indirect manufacturing cost pool	Cost-allocation base	Budgeted cost- allocation rate
1. Materials handling 2. Machining 3. Assembly 4. Inspection	Component parts Machine-hours Assembly-line-hours Inspection-hours	DKr 8 per part DKr 68 per hour DKr 75 per hour DKr 104 per hour

Langeland recently purchased 50 can-packaging machines from Henriksen AS. Each machine has direct materials costs of DKr 3000, requires 50 component parts, 12 machine- hours, 15 assembly-hours and 4 inspection-hours.

Henriksen’s prior costing system had one direct-cost category (direct materials) and one indirect-cost category (manufacturing overhead, allocated using assembly-hours).

Required

1 Present overview diagrams of the prior job-costing system and the refined activity-based job-costing system.

2 Calculate the unit manufacturing costs (using ABC) of each machine and the total man- ufacturing cost of the Langeland job.

3 The activity-based job-costing system of Henriksen has only one manufacturing direct- cost category: direct materials. A competitor of the Henriksen Company has two direct-cost categories at its manufacturing plant: direct materials and direct manufactur- ing labour. Why might Henriksen not have a direct manufacturing labour costs category in its job-costing system? Where are the manufacturing labour costs included in the Henriksen costing system?

4 What information might members of the team that refined the prior costing system find useful in the activity-based job-costing system?

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