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

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

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

Solution

The team that refined the prior costing system might have found that, ABC system have following advantages over the traditional method:

It helps to estimate the product cost more…………………………………

 

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