Ernest, SA The Following Are Two of the Jobs Completed During the Drivers

Essay

Ernest, SA., has identified the following overhead costs and cost drivers for next year: $$\begin{array} { l l l c } \text { Overhead Item } & \text { Expected Cost } & { \text { Cost Driver } } & \text { Expected Quantity } \\\text { Setup costs } & £ 320,000 & \text { Number of setups } & 4,000 \\\text { Ordering costs } & 120,000 & \text { Number of orders } & 20,000 \\\text { Maintenance } & 480,000 & \text { Machine hours } & 24,000 \\\text { Power } & 40,000 & \text { Kilowatt hours } & 160,000\end{array}$$ The following are two of the jobs completed during the year: $\begin{array}{lll}&\text { Job } 320& \text { Job } 321\\\text { Direct materials } & £ 8,000 & £ 19,000 \\\text { Direct labour } & £ 6,400 & £ 12,000 \\\text { Units completed } & 800 & 1,600 \\\text { Direct labour hours } & 240 & 500 \\\text { Number of setups } & 12 & 20 \\\text { Number of orders } & 20 & 40 \\\text { Machine hours } & 400 & 600 \\\text { Kilowatt hours } & 280 & 400\end{array}$ The company's normal activity is 32,000 direct labour hours. (Round amounts to two decimal places.)
a.Determine the unit cost for each job using direct labour hours to apply overhead.
b.Determine the unit cost for each job using the four cost drivers.
c.Which method produces the more accurate cost assignment? Why?