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.