Arnett Corp. manufactures computer desks in its White Bear LakeWhite Bear Lake,

Question

Arnett Corp. manufactures computer desks in its

White Bear LakeWhite Bear Lake,

MinnesotaMinnesota,

plant. The company uses activity-based costing to allocate all manufacturing conversion costs (direct labor and manufacturing overhead). Its activities and related data follow.

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Requirements

1.

Compute the per-unit manufacturing product cost of Standard desks and Unpainted desks.

2.

$ 6$6

$ 2$2

$ 22$22

$ 19$19

3.

Which product costs are reported in the external financial statements? Which costs are used for management decision making? Explain the difference.

4.

Arnett'sArnett's

$ 42$42

Requirement 1. Compute the per-unit manufacturing product cost of Standard desks and Unpainted desks. (Complete all input boxes. Enter a "0" for any zero amounts. Round your answers to the nearest whole dollar.)

Standard Desk

Unpainted Desk

Direct materials

Materials handling

Assembling

Painting

Total manufacturing cost

Number of units

Manufacturing cost per unit

DATA TABLE

Budgeted Cost

Cost

Activity

of Activity

Allocation Base

Allocation Rate

Materials handling. . .

$330,000

Number of parts

$0.80

Assembling. . . . . . .

$2,500,000

Direct labor hours

$12.00

Painting. . . . . . . . . .

$170,000

Number of painted desks

$4.90

ArnettArnett

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

Total

Total Direct

Total

Total Assembling

Units

Materials

Number

Direct Labor

Product

Produced

Costs

of Parts

Hours

Standard desk. . . . . .

7,500

$178,950

118,500

6,000

Unpainted desk. . . . .

1,500

$6,300

28,500

1,200

1.

Compute the per-unit manufacturing product cost of Standard desks and Unpainted desks.

2.

Premanufacturing activities, such as product design, were assigned to the Standard desks at

$ 6$6

each and to the Unpainted desks at

$ 2$2

each. Similar analyses were conducted of post-manufacturing activities, such asdistribution, marketing, and customer service. The post-manufacturing costs were

$ 22$22

per Standard and

$ 19$19

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

Arnett'sArnett's

managers set for Standard desks to earn a

$ 42$42

profit per desk?

Explanation / Answer

1)

2)

3)

There is a difference between the two reportable cost this is so because for reporting cost for financial purpose only cost of manufacturing the product is used (total manufacturing cost plus pre manufacturing cost )is used that is cost incurred to make asset ready for use.

And for management decision ,total cost of product is used to analyse whether the product is profitable or not.

4)Price to set for standard desk= total cost+ profit

       = 79+42

         = $121 per desk

Standard desk Unpainted desk Direct material 178950 118500 Material handling 94800    [118500*80] 22800    [28500*.80] Assembling 72000    [12*6000] 14400    [1200*12] Painting 36750    [7500*4.9] 0             [since its unpainted] Total manufacturing cost 382500 155700 Number of units 7500 1500 manufacturing cost per unit 51      [382500/7500] 103.8       [155700/1500]

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