Piedmont Computer Company uses a job order costing system in which each batch manufactured is a different job. Piedmont Computer Company assigns direct materials and direct labor to each job. The company assigns labor costs at $25 per hour. It allocates manufacturing overhead to jobs based on a predetermined overhead allocation rate, computed as a percentage of direct labor costs. At the beginning of 2020, the controller prepared the following budget. Manufacturing overhead $ 290,000
Direct labor costs $ 1,160,000
The controller also noted that three cost pools make up the manufacturing overhead:
Budgeted Manufacturing Estimated Cost
Cost Pool Overhead Cost Driver Driver Activity
for the Year
Assembly $235,000 Number of parts 940,000
Programming $35,000 Number of direct
labor hours 10,000
Testing $20,000 Number of tests 160
In November 2020, Pledmont Computer Company worked on several jobs. Records for two jobs appear here:
Data Table
Job 721 Job 722
Direct labor hours 23,400 2,500
Direct materials 19,500 1,500
Total number of parts 2,500 300
Total number of tests 8 2
Requirements:
1. Compute Piedmont Computer Company's total cost of each job using the traditional plantwide manufacturing overhead rate based on a percentage of direct labor cost.
2. Compute the total cost of each job using activity-based costing.
3. Why does the job cost differ between a traditional plantwide allocation vs. activity-based costing?