Question

19-35A Computing d ata in an ABC Oscar, Inc, manufacture bookcase activity areas and related data folow esan antivity based costing system. Orc de Cost of Material handing Assembly Peter Allocation Base 14,00 1.500.000 Number of direct later hour iyot there were to Good car produced two styles of bookcases in October the standard bookcase and an nished bookcase, which has fewer parts and requires no finishing. The totals for quantities, direct materials costs, and other data follow: Total Units Produced Total Direct Material Covts Product Standard bookcase Unfinished bookcase Total Direct Laber Cests $105.000 75,000 Total Number Total Assembling Direct of Parts 28.000 $91,000 7.000 7.500 2.500 Requirements 1. Compute the manufacturing product cost per unit of each type of bookcase. Standard $62 per unit 2. Suppose that pre-manufacturing activities, such as product design, were assigned to the standard bookcases at $5 each and to the unfinished bookcases at $3 each. Similar analyses were conducted of post-manufacturing activities such as distribution, marketing and customer service. The post-manufacturing costs were $20 per standard bookcase and $10 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 Oscar's managers set for unfinished bookcases to earn a net profit of $19 per bookcase?

Answer 1

Particulars Standard Book Case Unfinished Book Case 7,000 91,000 7,500 82,500 No. of units produced (A) Direct material Indirect Manufacturing costs Material Handling (28000*1) Assembling (10500*17) Finishing (5000*3.50) Total Manufacturing costs (B) Manufacturing Cost Per unit (A/B) 22,500 (22500*1) 127,500 (7500*17) 28,000 178.500 17,500 315,000 45.00 232,500 31.00

Particulars Standard Book Case Unfinished Book Case Pre-manufacturing Cost Manufacturing Product Cost Post - Manufacturing Costs Full Product Cost Per Unit 45.00 20 70.00 31.00 18 52.00

36 3 37 Manufacturing Product costs are reported in the external 38 financial statements. Managers use full product costs 39 for decision making. Full Product cost include the costs 40 of pre-manufacturing and post manufacturing costs that 41 are expensed in the year in which they are incurred for 42 external reporting purposes. But these costs are assigned to products for 43 internal decisions. 44

Particulars Unfinished Book Case 52.00 Full Product Cost Per Unit Add Profit Sale price Per Unit 71.00 54 55