P4-40A Use ABC to compute full product costs (Learning Objective 2)

Prescott Corp. manufactures computer desks in its Seville, Ohio, plant. The company uses activity-based costing to allocate all manufacturing conversion costs (direct labor and manufacturing overhead). Its activities and related data follow:

Activity	Budgeted Cost of Activity	Allocation Base	Cost Allocation Rate
Materials handling	$330,000	Number of parts	$0.70
Assembling	$2,600,000	Direct labor hours	$16.00
Painting	$150,000	Number of painted desks	$5.10

Prescott produced two styles of desks in March: the Standard desk and the Unpainted desk. Data for each follow:

Product	Total Units Produced	Total Direct Materials Costs	Total Number of Parts	Total Assembling Direct Labor Hours
Standard Desk	5,500	$99,000	118,500	5,700
Unpainted Desk	3,000	$18,000	28,500	1,000

Requirements

1.Compute the per-unit manufacturing product cost of Standard desks and Unpa inted desks.

2.Premanufacturing 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 $23 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 Prescott's managers set for Standard desks to earn a $41 profit per desk?