SalookanPrint is a t-shirt printing firm. It separates printing orders into batches and tracks costs by order number.

 

SalookanPrint purchases and holds inventory of plain t-shirts of various qualities and sizes so that when an order is received, sufficient varieties of t-shirts are available for customers to choose from. The firm uses FIFO method for inventory valuation as these t-shirts are purchased over different time periods and at different prices. The factory currently being occupied is rented but the management of UrbanzPrint is considering buying a new and bigger factory so as to house more t-shirt printing equipment as part of their future expansion plans. The marketing executive is currently working with the advertising agency to increase on their sales promotion coverage so as to enhance their market share.

For the month just ended, SalookanPrint  completed an order to print 600 t-shirts (Order# U12) for a large corporation's social event. The following initial costs were incurred:

Costs specific to Order# U12:

$

Plain t-shirts

4,800

Paints (sufficient for 700 t-shirts)

1,400

Design and making of silk-screen

2,000

Applied costs:

Direct labour - $7.00 per t-shirt

Factory overhead - 20% of direct labour costs

In addition to the above costs, the following were incurred unexpectedly:

(i)The silk-screen is custom-made with the design as required by customer and is needed to print the customer's design and organization logo onto the t-shirts. It is a one-off cost. An error was committed when making the silk-screen, resulting in 40 t-shirts being printed with a slightly wrong design. The silk-screen had to be corrected at a cost of $100.

(ii)The mistake on the 40 t-shirts could be corrected by covering up the mistake with white paint. This was done and they passed off as good units. The additional white paint totaled

$20 while the additional labour cost totaled $60. The usual overhead application applies.

(iii)Another 20 t-shirts had their sleeves accidentally burnt when they were being ironed at the end of the printing process. SalookanPrint decided to cut off the sleeves, blank out the

 

 customer's organization logo and sell them as sleeveless to its (SalookanPrint ) employees for $10 each. Additional costs incurred totaled $1.00 per t-shirt.

 

(iv)These 20 t-shirts had to be replaced and incremental costs incurred for the replacement were similar to the initial costs incurred.

(v)The excess paint left over after completing Order# U12 was used for another job, Order# U26. It was decided that a cost transfer of $160 should be made from Order# U12 to Order# U26.

Calculation of Cost incurred for completing order # U12.

Particulars Amount ($)

Cost of Plain T-Shirts 4960

Add :Cost of Paints 1400

Add : Cost of Design and Making of Silk Screen 2000

Add : Labour Cost 4400

Add: Factory Overhead @ 20% of Labour Cost ($ 4400*20%) 880

Add; Cost of mistake in Making Silk - Screen 100

Add ; Additional Paint cost incurred for correcting 40 t-shirts 20

Add ; Additional Cost Incurred on 20 T-shirts for making them Sleeve Less 20

Less : Revenue on 20 t-shirts sold as sleeve Less 200

Less ; Cost of paints Transferred to order # U26 160

Total Cost of order #U12 13420

Unit Cost = 13420 / 600= $ 22.37

1.Briefly explain whether the unit cost computed above is a "true" product cost, in the sense of absolute authenticity and verifiability. Cite two examples from SalookanPrint to support your answer.

Answer rating: 100% (QA)

The unit cost computed for Order U12 is not a true product cost in the sense of absolute authenticit... View the full answer