Activity-based costing, service company Quikprint Corporation owns a small printing press that prints leaflets, brochures, and advertising materials. Quikprint classifies its various printing jobs as standard jobs or special jobs. Quikprint’s simple job-costing system has two direct-cost categories (direct materials and direct labor) and a single indirect-cost pool. Quikprint operates at capacity and allocates all indirect costs using printing machine-hours as the allocation base.
Quikprint 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. Quikprint’s 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, purchasing, setup, printing machine operations, marketing, and administration. To see how activity-based costing would affect the costs of standard and special jobs, Quikprint collects the following information for the fiscal year 2009 that just ended.


If you want to use Excel to solve this exercise, go to the Excel Lab at www.prenhall.com/horngren/cost13e and download the template for Exercise 5-21.
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 Quikprint use the new cost information from its activity-based costing system to better manage itsbusiness?

 

B E Cause-and-Effect Relationship between Allocation Base and Activity Cost Standard Job Special Job 200 $ 1,500 $ 250 $ 200 Total 2 Number of printing jobs 3 Price per job 4 Cost of supplies per job 5 Direct labor costs per job 6 Printing machine hours per job 7 Cost of printing machine operations 400 $1,200 $ 200 $ 180 10 10 $150,000 Indirect costs of operating printing machines increase with printing machine hours 8. 9 Setup hours per job 10 Setup costs 11 Number of purchase orders 12 Purchase order costs 4 7 $ 90,000 Indirect setup costs increase with setup hours 400 500 $ 36,000 Indirect purchase order costs increase with number of purchase orders $ 40,000 Design costs are allocated to standard and special jobs based on a special study of the design department 13 14 Design costs $8,000 $32,000 15 Marketing costs as a percentage of 16 sales price Administration costs $ 39,000 $ 48,000 Demand for administrative resources increases with direct manufacturing labor hours 5% 5% 17