Ernest, SA

question 56

Essay

Ernest, SA., has identified the following overhead costs and cost drivers for next year: The following are two of the jobs completed during the year: The company's normal activity is 32,000 direct labour hours. (Round amounts to two decimal places.)
Required:
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?

---

Definitions:

Depletion

Systematic and rational allocation of the cost of a natural resource over the period of its exploitation

Straight-Line Depreciation

A method of allocating an asset's cost evenly across its useful life.

Natural Resources

Assets occurring in nature, such as mineral deposits, timber tracts, oil, and gas

Tangible Assets

Physical assets that hold value, such as land, buildings, vehicles, equipment, and inventory.