Job Costing Analysis: Simple vs. ABC Costing for ACCG200 Case Study

This document provides a detailed solution to a case study focusing on job costing methods. The analysis compares two primary approaches: simple job costing and activity-based costing (ABC). The solution calculates manufacturing costs per unit for two jobs (410 and 411) under both methods, considering direct materials, direct labor, and overheads. A key aspect of the solution involves a comprehensive breakdown of overhead allocation, highlighting the differences between the two methods. Simple costing uses a single overhead rate based on machine hours, while ABC allocates overhead costs across multiple activity cost drivers, such as material handling, lathe work, milling, grinding, and testing. The document then compares the manufacturing costs per unit under both methods, revealing how ABC provides a more accurate and logical cost distribution. The case study concludes by discussing how Tracy Corporation can leverage ABC to better manage costs, make informed decisions about product pricing and sales strategies, and improve client negotiations. The solution references relevant accounting literature to support the analysis.

Answer to Question 1: a -
The manufacturing costs per unit for each job under simple job costing are
as below:
Manufacturing Cost per Unit - Job Costing
Method
Particulars Job 410
(Amount)
Job 411
(Amount)
Direct Material $9,700 $59,900
Direct Labour $750 $11,250
Overheads:
$115/hr for 25 Hrs $2,875
$115/hr for 375 Hrs $43,125
Total Manufacturing
Cost $13,325 $1,14,27
5
No. of Units 10 200
Manufacturing
Cost/unit
$1,332.5
0 $571.38
Answer to Question 1: b -
Manufacturing Cost per Unit - ABC Method
Particulars
Job 410
(Amount
)
Job 411
(Amount)
Direct Material $9,700 $59,900
Direct Labour $750 $11,250
Overheads:
Material Handling - $0.40/part for 500 parts $200
$0.40/part for 2000 parts $800
Lathe Work - $0.20/turn for 20000 turns $4,000
$0.20/turn for 60000 turns $12,000
Milling - $20/Hr for 150 Mc hr $3,000
$20/Hr for 1050 Mc hr $21,000
Grinding - $0.80/part for 500 parts $400
$0.80/part for 2000 parts $1,600
Testing - $15/unit for 10 units $150
$15/unit for 200 units $3,000
Total Cost $18,200 $1,09,55
0
No. of Units 10 200
Manufacturing Cost/unit $1,820.0
0 $547.75
The manufacturing cost per unit for each job under Activity Based Costing
is as below:

Answer to Question 1: c -
Comparison of the job costs under both the methods is as below:
Particulars Job 410
(Amount)
Job 411
(Amount
)
No. of Units produced 10 200
Manufacturing Cost/unit - Simple Costing $1,332.50 $571.38
Manufacturing Cost/unit - ABC $1,820.00 $547.75
There is difference in manufacturing cost under both methods as the
overheads costs are allocated based on activity under each cost head
Activity Based Costing and only on the basis of machine hours in case of
simple costing method followed previously by Tracy Corporation
Answer to Question 1: d -
Tracy with the help of Activity Based Costing can better manage the costs
as with Activity Based Costing it knows exactly which job is using more of
resources and thus is more costly for the firm. Activity Based Costing
method distributes the entire cost into 5 different heads and then
allocates it to the jobs based on their usage thus making costs more
accurate and logical.
Tracy with the above information on costs can now focus on selling more
of Job 411 as that has a lower cost and thus can reap better margins for
the company. Tracy can negotiate better with the clients as it clearly
knows the breakup of the cost in the total process of Job 411.

References
Garrson, R., Noreen, E. and Brewer, P. (n.d.). Managerial accounting.
Turney, P. (1997). Activity based costing. London: Kogan Page.