Johnston's Office Department manufactures computer desks in its Topeka, Kansas, plant. Its activities and related data follow:

Budgeted Cost

Cost of Allocation Allocation

Activity Activity Base Rate

Materials handling $ 330,000 Number of parts $0.60

Assembling 188,500 Direct labor hours 13.00

Painting 134,000 Number of painted desks 20.62

Johnston produced two styles of desks in March: the Standard desk and Unpainted desk.

Data for each follow:

Total Total

Total Direct Total Assembling

Units Materials Number Direct

Product Produced Costs of Parts Labor Hours

Standard desk 6,500 $ 98,000 412,500 13,000

Unpainted desk 2,000 18,000 137,500 1,500

Required:

1. Compute the per unit manufacturing cost of Standard desks and Unpainted desks using a traditional approach with direct labor hours as the allocation base.
2. Compute the per unit manufacturing cost of Standard desks and Unpainted desks using an activity based costing system.
3. Explain why an activity based costing system is better than a traditional costing system.
4. Pre-manufacturing activities, such as product design, were assigned to the Standard desks at $4 each and to the Unpainted desks at $3 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 $19 per Unpainted desk. Compute the full product costs per desk. Use the cost determined in part (a) for the per unit manufacturing cost.
5. What price should Johnston's managers set for Standard desks to earn a $39 profit per desk?

6. Flash Manufacturing Co. manufactures 1 GB flash drives (jump drives). Price and cost data for a relevant range extending to 600,000 units per month are as follows: Sales prices per unit (Current monthly sales volume is 400,000 units) Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative expenses Monthly fixed expenses: Fixed manufacturing overhead Fixed selling and administrative expenses $35.00 7.00 8.00 3.00 2.00 $2,000,000 $3,000,000 Required: a) What would the company's monthly operating income be if it sold 500,000 units? b) Management is currently in contract negotiations with the labor union. If the negotiations fail, direct labor costs will increase by 20% and fixed costs will increase by $400,000 per month. If these costs increase, how many units will the company have to sell each month to break even? c) Suppose Flash adds a second line of flash drives (2 GB rather than 1 GB). A package of the 2 GB flash drives will sell for $40 and have variable cost per unit of $30 per unit. The expected sales mix is five of the smaller flash drives (1 GB) for every two larger flash drive (2 GB). Given this sales mix, how many of each type of flash drive will Flash need to sell to reach its target after tax monthly income of $750,000? Fixed costs will remain the same. The tax rate for Flash is 40%. 7. Johnston's Office Department manufactures computer desks in its Topeka, Kansas, plant. Its activities and related data follow: Activity Budgeted Cost of Activity Allocation Base Cost Allocation Rate Materials handling Assembling Painting $ 330,000 188,500 134,000 Number of parts Direct labor hours Number of painted desks $0.60 13.00 20.62 Johnston produced two styles of desks in March: the Standard desk and Unpainted desk. Data for each follow: Total Total Total Direct Total Assembling Units Materials Number Direct Product Produced Costs of Parts Labor Hours Standard desk Unpainted desk 6,500 2,000 $ 98,000 18,000 412,500 137,500 13,000 1,500 Required: a) Compute the per unit manufacturing cost of Standard desks and Unpainted desks using a traditional approach with direct labor hours as the allocation base. b) Compute the per unit manufacturing cost of Standard desks and Unpainted desks using an activity based costing system. c) Explain why an activity based costing system is better than a traditional costing system. d) Pre-manufacturing activities, such as product design, were assigned to the Standard desks at $4 each and to the Unpainted desks at $3 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 $19 per Unpainted desk. Compute the full product costs per desk. Use the cost determined in part (a) for the per unit manufacturing cost. e) What price should Johnston's managers set for Standard desks to earn a $39 profit per desk