Chapter 19: Q41PGB_2 (page 1081)

Martin, Inc. manufactures bookcases and uses an activity-based costing system. Martin’s activity areas and related data follow:
Activity
Budgeted Cost of Activity
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
*Refers to the number of units receiving the finishing activity, not the number of units transferred to Finished Goods Inventory
Martin produced two styles of bookcases in April: 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
$54,000
$67,500
9,000
4,500
Unfinished bookcase
3,500
56,000
52,500
7,000
3,500
Requirements
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 $24 per standard bookcase and $18 per unfinished bookcase. Compute the full product costs per unit.

Expert verified

Full product cost per unit

For standard bookcase: $101

For unfinished bookcase: $71

Step by step solution

Manufacturing cost for standard bookcase computed in earlier part: $216,000

$Product design cost = Cost per unit \times No . of units produced = $ 5 \times 3, 000 = $ 15, 000$

$Analysis cost = Cost per unit \times No . of units produced = $ 24 \times 3, 000 = $ 72, 000$

$Total full product cost = Manufacturing cost + Product design cost + Analysis cost = $ 216, 000 + $ 15, 000 + $ 72, 000 = $ 303, 000$

$Full product cost per unit = \frac{Total full product cost}{No . of units produced} = \frac{$ 303, 000}{3, 000} = $ 101$

Manufacturing cost for unfinished bookcase computed in earlier part: $175,000

$Product design cost = Cost per unit \times No . of units produced = $ 3 \times 3, 500 = $ 10, 500$

$Analysis cost = Cost per unit \times No . of units produced = $ 18 \times 3, 500 = $ 63, 000$

$Total full product cost = Manufacturing cost + Product design cost + Analysis cost = $ 175, 000 + $ 10, 500 + $ 63, 000 = $ 248, 500$

$Full product cost per unit = \frac{Total full product cost}{No . of units produced} = \frac{$ 248, 500}{3, 500} = $ 71$

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Activity	Estimated Cost	Allocation Base	Estimated quantity of allocation base
Documentation Preparation	\( 85,850	Pages	1,317 Pages
Information technology support	150,150	Applications used	715 applications
Training	424,000	Direct labor hours	4,000 hours
Total Indirect costs	\) 640,000

Activity	Predicted Reduction in Activity Units	Predetermined Overhead Allocation Rate per unit

Inspection of incoming raw materials	395	\( 44
Inspection of finished goods	395	26
Number of defective units discovered in-house	1,500	54
Number of defective units discovered by customers	275	73
Lost profits due to dissatisfied customers	100	103

Activity	Budgeted Cost of Activity	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

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	\(54,000	\)67,500	9,000	4,500
Unfinished bookcase	3,500	56,000	52,500	7,000	3,500