=+6-31 KK Activity-based costing, service company OBJECTIVE 5 Prime Printers Ltd owns a small printing press that prints leaflets, brochures and advertising materials. Prime Printers classifies its various printing jobs as standard jobs or special jobs. Prime Printers’ simple job-costing system has two direct cost categories (direct materials and direct labour) and a single indirect cost pool. Prime Printers operates at capacity and allocates all indirect costs using printing machine-hours as the cost-allocation base.

Prime Printers is concerned about the accuracy of the costs assigned to standard and special jobs and therefore is planning to implement an activity-based costing system. Prime Printers’ ABC system would have the same direct cost categories as its simple costing system. However, instead of a single indirect cost pool there would now be six categories for assigning indirect costs: design, 246 Chapter 6: Activity-based costing and activity-based management M06_HORN3377_02_LT_C06.indd 246 2/09/13 3:26 PM purchasing, set-up, printing machine operations, marketing and administration. To see how ABC would affect the costs of standard and special jobs, Prime Printers collects the following information for the financial year 2013 that just ended:

1 2

3 4

5 6

7 8

9 10 11 12 13 14 15 16 17 A B C D E F G H Standard job Special job Total Number of printing jobs

$1500

$200

$250

$1200

$180

$200 boj rep ecirP Cost of supplies per job Direct labour costs per job Printing machine-hours per job Cost of printing machine operations $150 000 eS t-up hours per job 4 7 t-up costseS 00009$

Number of purchase orders stsoc redro esahcruP 00063$

stsoc ngiseD $8000 $32 000 00004$

Marketing costs as a percentage of sales price 00084$

$39 000 stsoc noitartsinimdA Design costs are allocated to standard and special jobs based on a special study of the Design Department