Bowman Company - Activity based costing

Bowman Company has established the following cost pools for 2017.

COMMITTED

COST POOLS COSTS COST DRIVERS LEVEL 

Maintenance  $  20,000 Machine hours 10,000

Materials handling  25,000 Number of moves  250

Machine setup  30,000 Setup hours  1,000

Inspection  25,000 Number of inspections  500

Total $100,000 

The following information pertains to two representative jobs completed during January 2017.

ITEM J101 J102

Direct materials cost $ 10,000 $ 7,500

Direct labor cost $ 8,000 $ 5,500

Number of units  2,000  1,500

Direct labor hours  640  400

Machine hours  700   650

Number of material moves  40  15

Number of setup hours   80  40

Number of inspections  35  15

Required:

a) Determine the unit cost of each job using machine hours to allocate all support costs.

b) Determine the unit cost of each job using activity-based costing.

c) Determine the selling price of each job, if the desired gross profit is 40% and the traditional costing approach was used.

d) Determine the selling price of each job, if the desired gross profit is 40% and the activity based costing approach was used.

e) Which of the two methods produces more accurate estimates of job costs and profits? Explain.