Question

Prescott Corp. manufactures computer desks in its Rochester, New York, plant. The company uses activity-based costing to allocate all manufacturing conversion costs (direct labor and manufacturing overhead). Its activities and related data follow (Click the icon to view the activity areas and related data) Requirements 1. Compute the per-unit manufacturing product cost of Standard desks and Unpainted desks. 2. Premanufacturing activities such as product design, were assigned to the Standard desks at S6 each and to the Unpainted desks 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 and $20 per Unpainted desk Compute the full product costs per desk. 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 Standard desks to earn a $41 profit per desk? Requirement 1. Compute the per-unit manufacturing product cost of Standard desks nearest whole dollar.) Data Table Standard Desk Unpainted Desk Direct materials Material handling Assembling Painting Total manufacturing cost Number of units Budgeted Cost Cost Activity of Activity Allocation Base Allocation Rate Material handings 270.000 Number of parts 0.70 Assembling .... S 2,500,000 Direct labor hours $ Painting ........5 140.000 Number of painted desks S Prescott produced two styles of desks in March the Standard desk and Unpainted desk. Data for each follow 16.00 Manufacturing cost per unit Product Total Units Produced 7,000 2,000 Total Direct Materials Costs 5 169,100 $ 43,800 Total Number of Parts 120,000 30,000 Total Assembling Direct Labor Hours 6.100 700 Standard desk Unpainted desk .. Print Done

Answer 1

1) Calculation of Manufacturing Product Cost per unit (Amounts in $)

	Standard Desk	Unpainted Desk
Direct Materials	169,100	43,800
Materials Handling	84,000 (120,000 parts*$0.70)	21,000 (30,000 parts*$0.70)
Assembling	97,600 (6,100 hrs*$16)	11,200 (700 hrs*$16)
Painting	34,300 (7,000 units*$4.90)	9,800 (2,000 units*$4.90)
Total manufacturing cost (A)	385,000	85,800
No. of units (B)	7,000	2,000
Manufacturing cost per unit (A/B)	55 per unit	42.90 per unit

Notes:-

Each activity is multiplied by cost allocation rate of that activity for allocating activity cost.

2) Calculation of full product cost per desk (Amounts in $)

	Standard Desk	Unpainted Desk
Manufacturing cost per unit	55	42.90
Pre-Manufacturing Cost	6	2
Post-Manufacturing Cost	22	20
Full Product Cost per unit	83	64.90

Full product cost both pre-manufacturing and post manufacturing cost along with manufacturing cost.

3) Manufacturing product costs are reported in the financial statements. Full Product costs are used for management decision making. Full product costs include both pre-manufacturing cost and post manufacturing costs but there costs are expensed while reporting in financial statements.

4) Price for Standard Desk = Full product cost+Desired Profit for Std Desk

= $64.90 per desk+$41 per desk = $105.90 per desk