Management Accountant

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:

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:

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.