Prescott, Inc., manufactures bookcases and uses an activity-based costing system.

Prescott, Inc., manufactures bookcases and uses an activity-based costing system. Prescott's activity areas and related data follows

Week 3 Lab 3.2 Prescott, Inc., manufactures bookcases and uses an activity-based costing system.

Week 3 Lab 3.2

Activity Budgeted Cost of Activity Allocation Base Cost Allocation Rate

Materials handling $230,000 Number of parts $0.50

Assembly 3,200,000 Direct labor hours 16.00

Finishing 180,000 Number of finished units 4.50

Prescott produced two styles of bookcases in October: the standard bookcase and an unfinished bookcase, which has fewer parts and requires no finishing. The totals for quantities, direct
materials costs, and other data follow:

Product Total Units  Produced Total Direct  Materials Costs Total Direct  Labor Costs Total Number of Parts Total Assembling  Direct Labor Hours

Standard bookcase 3,000 $36,000 $45,000 9,000 4,500

Unfinished bookcase 3,500 35,000 35000 7,000 3,500

Requirements:

1. Compute the manufacturing product cost per unit of each type of bookcase.

2. Suppose that pre-manufacturing activities, such as product design, were assigned to the standard bookcases at $7 each, and to the unfinished bookcases at $2 each. Similar analyses
were conducted of post-manufacturing activities such as distribution, marketing, and customer service. The post-manufacturing costs were $22 per standard bookcase and $14 per
unfinished bookcase. Compute the full product costs per unit.

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 Prescott's managers set for unfinished bookcases to earn $15 per bookcase?

Corbertt Pharmaceuticals manufactures an over-the-counter allergy medication. The company sells both large commercial containers of 1,000 capsules to health-care facilities
and travel packs of 20 capsules to shops in airports, train stations, and hotels. The following information has been developed to determine if an activity-based costing system
would be beneficial:

Activity Estimated Indirect Activity Costs Allocation Base Estimated Quantity of  Allocation Base Materials handling $95,000

Kilos 19,000 kilos

Packaging 219,000

Machine hours 5,475 hours

Quality assurance 124,500

Samples 2,075 samples

Total indirect costs $438,500

Other production information includes the following:

Commercial Containers Travel Packs

Units produced 3,500 containers 57,000 packs

Weight in kilos 14,000 5,700

Machine hours 2,625 570

Number of samples 700 855

Requirements:

1. Compute the cost allocation rate for each activity.

2. Use the activity-based cost allocation rates to compute the activity costs per unit of the commercial containers and the travel packs. (Hint: First compute the total activity
cost allocated to each product line, and then compute the cost per unit.)

3. Corbertt's original single-allocation-base costing system allocated indirect costs to produce at $157 per machine hour. Compute the total indirect costs allocated to the
commercial containers and to the travel packs under the original system. Then compute the indirect cost per unit for each product.

4. Compare the indirect activity-based costs per unit to the indirect costs per unit from the single-allocation-base system. How have the unit costs changed? Explain why the
costs changed.

TUTORIAL PREVIEW

Req. 1

	Standard	Unfinished
	Bookcase	Bookcase
Direct materials	$36,000	$35,000
Direct labor	45,000	35,000
Indirect manufacturing costs:
Materials handling
(9,000 and 7,000) × $0.50	4,500	3,500

File name: Week 3 Lab 3.2.xls File type: .xls  PRICE: $12