Question

Rosie Learns, Inc. manufactures robots and uses an activity-based costing system. Rosie Learns’ activities and related data are listed below:

Activity	Budgeted Cost	Allocation Base	Predetermined Overhead Allocation Rate
Materials Handling	$230,000	Number of Parts	$1.50
Assembly	3,200,000	Number of assembling direct labor hours	16.00
Finishing	150,000	Number of finished units*	3.00

*The number of units receiving the finish activity, not the number of units transferred to Finished Goods Inventory.

Rosie Learns produces two models of robots, the Rosie V and the Rosie X. The Rosie X has fewer parts and requires no finishing work.

Product	Total Units Produced	Total Direct Materials Costs	Total Direct Labor Costs	Total Number of Parts	Total Assembling Direct Labor Hours
Rosie V	3,000	54,000	67,500	8,000	4,500
Rosie X	3,500	56,000	52,500	6,000	3,500

Requirements:

1. Compute the manufacturing product costs per unit of each model of robot.
2. Suppose that pre-manufacturing activities, such as product design were assigned to Roxie V at $8 each and to Rosie X at $5 each. Similar analyses were done on post-manufacturing actives such as distribution, marketing, and customer service. The post-manufacturing costs were $18 for Rosie V and $14 for Rosie X. What is 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? What is the difference?
4. What price should Rosie Learns set for Rosie X to earn a target net profit of $20 per robot?

Answer 1

1. Compute the manufacturing product costs per unit of each model of robot.

Manufacturing Cost per Unit	Rosie V	Basis	Rosie X	Basis
Material	18.00	54,000/3,000	16.00	56,000/3,500
Direct Labor	22.50	67,500/3,000	15.00	52,500/3,500
Overhead - Material Handling	4.00	8,000/3,000*1.5	2.57	6,000/3,500*1.5
Overhead - Assembly	24.00	4,500/3,000*16	16.00	3,500/3,500*16
Overhead - Finishing	3.00	3*1	3.00	3*1
Total Manufacturing cost per unit	71.50		52.57

2.Suppose that pre-manufacturing activities, such as product design were assigned to Roxie V at $8 each and to Rosie X at $5 each. Similar analyses were done on post-manufacturing actives such as distribution, marketing, and customer service. The post-manufacturing costs were $18 for Rosie V and $14 for Rosie X. What is the full product costs per unit?

Full product Cost per Unit	Rosie V	Rosie X
Manufacturing cost per unit	71.50	52.57
Pre-manufacturing Cost	8.00	5.00
Post-Manufacturing Cost	18.00	14.00
Total Full produce cost per unit	97.50	71.57

3. Which product costs are reported in the external financial statements? Which costs are used for management decision making? What is the difference?

Manufacturing product cost is reported in the external financial statements. Full product costs are relevant for management decision making. Full product costs include the costs of pre-manufacturing and post-manufacturing activities that are debited to P&L when incurred for external financial reporting.

4. What price should Rosie Learns set for Rosie X to earn a target net profit of $20 per robot?

Sale Price of Product = Full product cost + Profit per unit

91.57 = 71.57+20

Price of Rosie X needs to be fixed $91.57 per unit to earn net profit margin per unit of $20.