Product costing in an ABC system
Prescott, Inc., manufactures bookcases and uses an activity-based costing system. Prescott’s activity areas and related data follow:
|
Activity
|
Budgeted Cost of Activity
|
Number of parts
|
Cost Allocation Rate
|
|
Materials handling
|
$ 230,000
|
Direct labor hours
|
$ 0.50
|
|
Assembly
|
3,200,000
|
Number of finished units
|
16.00
|
|
Finishing
|
180,000
|
Allocation Base
|
4.50
|
Prescott produced two styles of bookcases in October: the standard bookcase and an unfinished bookcase, which has fewer parts and requires no finishing. The totals for quantities, direct materials costs, and other data follow:
|
Product
|
Total Units Produced
|
Total Direct Materials Costs
|
Total Direct Labor Costs
|
Total Number of Parts
|
Total Assembling Direct Labor Hours
|
|
Standard bookcase
|
3,000
|
$ 36,000
|
$ 45,000
|
9,000
|
4,500
|
|
Unfinished bookcase
|
3,500
|
35,000
|
35,000
|
7,000
|
3,500
|
Requirements
1. Compute the manufacturing product cost per unit of each type of bookcase.
2. Suppose that pre-manufacturing activities, such as product design, were assigned to the standard bookcases at $7 each, and to the unfinished bookcases at $2 each. Similar analyses were conducted of post-manufacturing activities such as distribution, marketing, and customer service. The post-manufacturing costs were $22 per standard bookcase and $14 per unfinished bookcase. Compute the full product costs per unit.
3. Which product costs are reported in the external financial statements? Which costs are used for management decision making? Explain the difference.
4. What price should Prescott’s managers set for unfinished bookcases to earn $15 per bookcase?