Chapter 19, Problem 1DC

Harris Systems specializes in servers for workgroup, e-commerce, and ERP applications. The company’s original job costing system has two direct cost categories: direct materials and direct labor. Overhead is allocated to jobs at the single rate of $22 per direct labor hour.

  A task force headed by Harris’s CFO recently designed an ABC system with four activities. The ABC system retains the current system’s two direct cost categories. Overhead costs are reflected in the four activities. Pertinent data follow:

 Harris Systems has been awarded two new contracts, which will be produced as Job A and Job B. Budget data relating to the contracts follow:

Requirements

1. 1. Compute the budgeted product cost per unit for each job, using the original costing system (with two direct cost categories and a single overhead allocation rate).
2. 2. Suppose Harris Systems adopts the ABC system. Compute the budgeted product cost per unit for each job using ABC.
3. 3. Which costing system more accurately assigns to jobs the costs of the resources consumed to produce them? Explain.