Use ABC to compute full product costs (Learning Objective 2)

Hone’s Office Department manufactures computer desks in its Topeka, Kansas, plant. The company uses activity-based costing to allocate all manufacturing conversion costs (direct labor and manufacturing overhead). Its activities and related data follow.

Hone produced two styles of desks in March: the standard desk and unpainted desk. Data for each follow.

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 stan¬ dard desks at $5 each and to the unpainted desks at $3 each. Similar analyses were conducted of post manufacturing activities, such as distribution, market¬ ing, and customer service. The post-manufacturing costs were $25 per standard and $22 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 Hone’s managers set for standard desks to earn a $42 profit per desk?

Transcribed Image Text:

Activity Budgeted Cost of Activity Allocation Base Number of parts Materials handling $ 300,000 Assembling Painting 2,500,000 170,000 Direct labor hours Number of painted desks Cost Allocation Rate $ 0.60 15.00 5.00