1. In the past, the Larry’s Lawnmowers Ltd. (LLL) allocated indirect manufacturing costs based on direct labour hours. Recently, management has decided to pilot a system of time-driven activity-based costing to allocate these costs. The division produces two lawnmower models: Lo-cost and Deluxe. The following information has been obtained from the company’s records over the past year:
|
|
Lo-cost |
Deluxe |
|
Units produced |
500,000 |
50,000 |
|
Direct labour hours incurred |
200,000 |
40,000 |
|
Inspections per lawnmower |
2 |
4 |
|
Time for each inspection (hrs.) |
.1 |
.3 |
|
Lawnmowers packed and shipped per batch |
2,000 |
500 |
|
Individual lawnmower packing time (hrs.) |
.25 |
.4 |
|
Additional preparation time per batch (hrs.) |
30 |
15 |
LLL employs 245 employees to perform indirect labour functions, rotating among machine setups, final inspections and shipping. Each employee is paid $50,000 per year on average, including benefits. On average, each employee works 1,600 hours per year.
200 automated production machines are leased for $14,000,000 in total each year. Each machine is available for 1,600 hours per year, including set up time. Once a machine is set up, no labour is necessary to oversee it. Machine-related information for the year is as follows:
|
|
Lo-cost |
Deluxe |
|
Machine hours per lawnmower |
.4 |
.6 |
|
Set up time per run (hrs.) |
300 |
600 |
|
Number of production runs |
100 |
50 |
Required
a. Determine the amount of indirect manufacturing costs allocated to one lawnmower of each type (Lo-cost, Deluxe) based on the existing cost allocation basis (direct labour hours).
b. Determine the indirect manufacturing support costs for one lawnmower of each type using time-driven activity-based costing. Use the following format. Show supporting calculations separately.
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|
Lo-cost |
|
Deluxe |
|
1. Indirect labour |
|
|
|
|
a. Machine set up |
|
|
|
|
b. Shipping |
|
|
|
|
Total indirect labour |
|
|
|
|
2. Machines |
|
|
|
|
a. Machine set up |
|
|
|
|
b. Machine production |
|
|
|
|
Total machine costs |
|
|
|
|
Total indirect mfg. costs |
|
|
|
