Quikprint Corporation owns a small printing press that prints leaflets, brochures, and advertising

materials. It 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. The company 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. Its 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 2017 that just ended. The data is provided on the

following page.

Required:

a. Calculate the cost of a standard job and a special job under the simple costing system.

b. Calculate the cost of a standard job and a special job under the activity-based costing system.

c. Compare the costs of a standard job and a special job in requirements a and b. Why do the

simple and activity-based costing systems differ in the cost of a standard job and a special

job?

d. How might Quikprint use the new cost information from its activity-based costing system to

better manage its business?

Cost type

Standard

Job

Special

Job

Total

Cause and Effect

Relationship Between

Allocation Base and

Activity Cost

Number of printing jobs 400 200

Price per job $1,200 $1,500

Cost of supplies per job $200 $250

Direct labor costs per job $180 $200

Printing machine-hrs per job 10 10

Cost of printing machine

operations

$150,000

Indirect costs of operating

printing machines increase

with printing machine

hours

Setup-hours per job 4 7

Setup costs $90,000

Indirect setup costs

increase with setup hours

Total number of purchase

orders

400 500

Purchase order costs $36,000

Indirect purchase order

costs increase with number

of purchase orders

Design costs $8,000 $32,000 $40,000

Design costs are allocated

to standard and special

jobs based on a special

study of the design

department

Marketing costs as a

percentage of revenues

5% 5% $39,000

Administration costs $48,000

Demand for administrative

resources increases with

direct labor costs