Question
UrbanzPrint is a t-shirt printing firm. It separates printing orders into batches and tracks costs by order number. UrbanzPrint purchases and holds inventory of plain
UrbanzPrint is a t-shirt printing firm. It separates printing orders into batches and tracks costs
by order number.
UrbanzPrint 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, UrbanzPrint 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 organisation 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 totalled
$20 while the additional labour cost totalled $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. UrbanzPrint decided to cut off the sleeves, blank out the
customer's organisation logo and sell them as sleeveless to its (UrbanzPrint) employees
for $10 each. Additional costs incurred totalled $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.
Required:
1. Prepare a report to compute the total and unit costs required to complete Order# U12. List
all cost components and show all workings, rounding your answers to two decimal places
where applicable.
(20 marks)
2. 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 UrbanzPrint to support
your answer.
(6 marks)
3. The owner of UrbanzPrint has just attended a business talk on operation costs control and
has approached you, the management accountant, to help clear some of his doubts. He has
the following questions for you:
a) Explain the difference between fixed and variable costs. Cite at least three examples of
each cost type using costs incurred by UrbanzPrint, explaining the reasons for your
choices.
b) Explain whether you agree with the statement "All variable costs are controllable while
all fixed costs are uncontrollable". Support your answer with costs incurred by
UrbanzPrint.
c) Explain the difference between direct and indirect costs. Do you agree that all variable
costs are direct costs while all fixed costs are indirect costs? Cite costs incurred by
UrbanzPrint as examples to support your answer.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started