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?

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