Ferreira Company has established the following cost pools for 2015.
COMMITTED
COST POOLS COSTS COST DRIVERS LEVEL
Maintenance $ 20,000 Machine hours 10,000
Materials handling 25,000 Number of moves 250
Machine setup 30,000 Setup hours 1,000
Inspection 25,000 Number of inspections 500
Total $100,000
The following information pertains to two representative jobs completed during January 2015.
ITEM J101 J102
Direct materials cost $ 10,000 $ 7,500
Direct labor cost $ 8,000 $ 5,500
Number of units 2,000 1,500
Direct labor hours 640 400
Machine hours 700 650
Number of material moves 40 15
Number of setup hours 80 40
Number of inspections 35 15
Required:
Determine the unit cost of each job using machine hours to allocate all support costs.
Determine the unit cost of each job using activity-based costing.
Which of the two methods produces more accurate estimates of job costs? Explain.
