McKnight Corp. manufactures computer desks in its Orrville, Ohio, plant. The company uses activity-based costing to allocate all manufacturing conversion costs (direct labor and manufacturing overhead). Its activities and related data follow:

McKnight produced two styles of desks in March: the Standard desk and the Unpainted desk. Data for each follow:

Requirements
1. Compute the per-unit manufacturing product cost of Standard desks and Unpainted desks.
2. Pre-manufacturing activities, such as product design, were assigned to the Standard desks at $5 each and to the Unpainted desks at $4 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 $21 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 McKnight's managers set for Standard desks to earn a $42 profit per desk?

Transcribed Image Text:

Budgeted Cost of Activity Cost Activity Materials handling. Peiny ...-_...-. Allocation Base Allocation Rate $ 0.60 $15.00 $ 180,000 Number of painted desks 5.10 300,000 Number of parts $2,400,000 Direct labor hours Total Units Produced Total Direct Materials Costs Total Assembling Direct Labor Houns Total Number of Parts 120,500 30,500 Product 5,000 2,500 93,000 S21,000 5,900 700 Unpainted desk