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Topics: Manufacturing, Activity-based costing, Allocation Pages: 4 (272 words) Published: September 6, 2014


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.

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...
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