Question
ArtprintArtprint Corporation owns a small printing press that prints leaflets, brochures, and advertising materials. ArtprintArtprint classifies its various printing jobs as standard jobs or special
ArtprintArtprint Corporation owns a small printing press that prints leaflets, brochures, and advertising materials. ArtprintArtprint classifies its various printing jobs as standard jobs or special jobs
To see how activity-based costing would affect the costs of standard and special jobs,
Artprint collects the following information for the fiscal year 2017 that just ended.
| Cost of supplies per job |
|
| Direct manufacturing labor cost per job |
|
| Indirect cost allocated to each job |
|
| Total costs |
|
| Special |
| Job |
|
|
|
|
|
|
|
|
Requirement 2. Calculate the cost of a standard job and a special job under the activity-based costing system.
Begin by calculating the allocation rates for the following activities. (Abbreviations used: $ = Dollar, DM = Direct manufacturing, Qty. = Quantity. Round the allocation rates to the nearest cent for all activities exceptAdministration; round Administration to five decimal places, X.XXXXX.)
|
|
| / |
| = | ABC Allocation rate | |||
| Machine operations |
| / |
| = |
|
| ||
| Setups |
| / |
| = |
|
|
| Purchase orders |
| / |
| = |
|
|
| Administration |
| / |
| = |
|
|
Now, completing the table for total costs of standard jobs, special jobs and then cost per job for each type of job. (Round your answers to the nearest whole dollar except cost per job. Round cost per job to the nearestcent.)
|
| Standard |
| ABC Costing System | Job |
| Cost of supplies |
|
| Direct manufacturing labor costs |
|
| Indirect costs allocated: |
|
| Machine operations |
|
| Setups |
|
| Purchase orders |
|
| Design |
|
| Marketing |
|
| Administration |
|
| Total costs |
|
| Special |
| Job |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of each job |
|
|
Requirement 3. Compare the costs of a standard job and a special job in requirements 1 and 2. Why do the simple and activity-based costing systems differ in the cost of a standard job and a special job?
Standard jobs cost
less
more
under the simple costing system than under the activity-based costing system. Special jobs cost
less
more
under the simple costing sytem than under the activity-based costing system. Relative to the ABC system, the simple costing system
overcosts
undercosts
standard jobs and
overcosts
undercosts
special jobs.
Requirement 4. How might
ArtprintArtprint
use the new cost information from its activity-based costing system to better manage its business?
A.Under the simple system,
ArtprintArtprint
was making a gross margin of
3232%
on each standard job and
3838%
on each special job. But, the ABC system reveals that it is actually making a gross margin of about
3636%
on each standard job and about
3232%
on each special job. Depending on the market competitiveness,
ArtprintArtprint
may either want to reprice the different types of jobs, or, it may choose to market
special jobsspecial jobs
more aggressively than before.
B.Under the simple system,
ArtprintArtprint
was making a gross margin of
3232%
on each standard job and
3838%
on each special job. But, the ABC system reveals that it is actually making a gross margin of about
3636%
on each standard job and about
3232%
on each special job. Depending on the market competitiveness,
ArtprintArtprint
may either want to reprice the different types of jobs, or, it may choose to market
standard jobsstandard jobs
more aggressively than before.
C.Under the simple system,
ArtprintArtprint
was making a gross margin of
3838%
on each standard job and
3232%
on each special job. But, the ABC system reveals that it is actually making a gross margin of about
3232%
on each standard job and about
3636%
on each special job. Depending on the market competitiveness,
ArtprintArtprint
may either want to reprice the different types of jobs, or, it may choose to market
special jobsspecial jobs
more aggressively than before.
D.
None of the above. The new cost information would have no impact on how the company manages its business.
Cause-and-Effect Relationship Between
Standard Job
Special Job
Total
Allocation Base and Activity Cost
Number of printing jobs
1,600
800
Price per job
$1,400
$2,100
Cost of supplies per job
$75
$330
Direct labor costs per job
$160
$270
Printing machine-hours per job
10
10
Cost of printing machine operations
$648,000
Indirect costs of operating printing machines
increase with printing machine-hours
Setup-hours per job
8
9
Setup costs
$600,000
Indirect setup costs increase with setup-hours
Total number of purchase orders
330
430
Purchase order costs
$26,600
Indirect purchase order costs increase with
number of purchase orders
Design costs
$10,000
$34,000
$44,000
Design costs are allocated to standard and special
jobs based on a special study of the design department
| 1. | Calculate the cost of a standard job and a special job under the simple costing system. |
| 2. | Calculate the cost of a standard job and a special job under the activity-based costing system. |
| 3. | Compare the costs of a standard job and a special job in requirements 1 and 2. Why do the simple and activity-based costing systems differ in the cost of a standard job and a special job? |
| 4. | How might ArtprintArtprint use the new cost information from its activity-based costing system to better manage its business? |
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Financial Accounting Longman Modular Texts In Business And Economics
Authors: Christopher Waterston, Anne Britton
2nd Edition
058238169X, 978-0582381698
