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Calculation Of Indirect Manufacturing Costs And Support Costs

Question

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:

  1. 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).
  2. 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.

 

Summary

The question belongs to Accounting and it discusses about calculation of indirect manufacturing costs allocation and indirect manufacturing support costs.

Total Word Count 143

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