10 2 points To remain more competitive Superior has decided

10) (2 points) To remain more competitive, Superior has decided to adopt ABC method of allocating overhead. Additionally, they have decided to determine the sale price (revenue) as a mark-up of total costs (not just Direct Material). Superior believes Job ZF14 is priced competitively and would like to use its mark-up for other jobs. Use the ABC Job Report to determine Superior\'s mark-up rate. Sales for Job ZF14 total costs of Job ZF14 Mark-up rate 11) (19 points) Job ZF14 currently consists of 1,000 units. Superior is contemplating a new line of product as Job AF14-S. This product will be a \"specialty\" version of the ZF14 product and consist of higher quality material that costs 30% more than the standard ZF14 product\'s material. Production/assembly will take the same number of direct labor hours (same cost per unit) Assume Superior expects to produce 300 units in Job ZF14-S. Superior wants to prepare a comparative Job Summary for ZF14-S. Follow the steps below to complete the comparative Job Summary below a) (2 points) How much will the direct material costs be for Job ZF14-S?: Calculate a direct material cost per units for Job ZF14 and increase it by 30%. Use this cost per unit to determine total direct material job costs for ZF14-S. Include the amount in the Job Summary below. Note that direct material costs will be the same under both ABC and Traditional method. b) (2 points) How much will the direct labor costs be for Job ZF14-S? Hint: Calculate a direct labor cost per unit for Job ZF14 and use it to determine total direct labor job costs for ZF14-S. Note that direct labor costs will be the same under both methods. c points) For the ABC method, the expected activities for ZF14-S are estimated below. Use the ABC rates calculated in 6b to estimate the overhead associated with ZF14-S in the table below and include the overhead amount in the Job Summaryy ZF14-S units Costs 180 10 Batch Setups Product Sustaining General Factory Total Overhead 60 1,260 Applied d) (2 points) Calculate the overhead that would have been allocated for this job under the traditional method. Use the predetermined rate calculated in 5a and the direct labor costs from 12b.

Solution

g) Downside of traditionl costing:

Example 1: Overhead allocation under traditional costing is based on direct labor costs. The accuracy of the predetermined rate is lessas compared to ABC. If you see the Job ZF14-S, under traditional costing the overapplied is quite less than what ia applied under ABC. This might result in undervaluation of cost.

Example 2: Sales price under traditional costing is less than under ABC. Though the margin is ame, due to less accuracy of traditional costing, if the overhead is greatly underapplied this might result in loss as markup is based on cost .

10)	Sales for Job ZF14	(a)	241,340
	Total costs for Job ZF14	(b)	138,933
	Mark-up Rate	(a)/(b)	1.74
11a)	Direct Material Costs of Job ZF14	(A)	62,260
	No of units	(B)	1,000
	Cost per unit of Job ZF14	(C=A/B)	62.26
	Add: 30%	(D)	18.68
	Cost per unit of Job ZF14-S	(E=C+D)	80.94
	No of units	(F)	300
	Total Direct Material Cost for Job ZF14-S	(E*F)	24,281.40
b)	Direct Labor Costs of Job ZF14	(A)	14,000
	No of units	(B)	1,000
	Cost per unit of Job ZF14	(C=A/B)	14.00
	No of Units	(D)	300
	Total Direct Labor Cost for Job ZF14-S		4,200.00
c)		ZF14-S
		Unit (A)	Cost per unit (B)	Cost (A*B)
	Support	180	19.92	3,585.60
	Batch Setups	10	214.19	2,141.90
	Product Sustaining	6	1,043.43	6,260.58
	Inspection	60	22.13	1,327.80
	General Factory	1260	9.96	12,549.60
	Total Overhead Applied under ABC			25,865.48
d)	Predetermined Rate (332000/70000)	4.74
	Direct Labor Costs for Job ZF14-S	4,200
	Total Overhead applied (4.74*4200)	19,920
	under Traditional costing
e) & f)			Superior Company
			Job Summary
			Job ZF14-S
		Ref.	ABC method	Traditional
	Job Costs:
	Direct Material	11a	24,281.40	24,281.40
	Direct Labor	11b	4,200.00	4,200.00
	Overhead	11c & 11d	25,865.48	19,920.00
	Total Job Costs	11e	54,346.88	48,401.40
	No of Units		300	300
	Cost Per Unit	11e	181.16	161.34
	Mark up	10	1.74	1.74
	Sales Price per unit	11f	314.69	280.26