Prescott Corp. manufactures computer desks in its Boston, Massachusetts, plant.
ID: 2541109 • Letter: P
Question
Prescott Corp. manufactures computer desks in its Boston, Massachusetts, plant. The company uses activity-based costing to allocate all manufacturing conversion costs (direct labor and manufacturing overhead). Its activities and related data follow. (click the icon to view the activity areas and related data.) Requirements 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 $7 each and to the Unpainted desks at $2 each. Similar analyses were conducted of post-manufacturing activities, such as distribution, marketing, and customer service. The post-manufacturing costs were $23 per Standard and $20 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. What price should Prescott's managers set for Standard desks to earn a $42 profit per desk? 4. Requirement 1. Compute the per-unit manufacturing product cost of Standard desks and Unpainted desks. (Complete all input boxes. Enter a "O" 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 unitExplanation / Answer
Answer - Requirement 1 Computation of per unit manufacturing cost Standard Desk Unpainted Desk Direct Materials $128,150.00 $33,800.00 Materials Handling $84,700.00 $21,700.00 Assembling $85,500.00 $16,500.00 Painting $33,150.00 $7,650.00 Total Manufacturing Cost $331,500.00 $79,650.00 Number of units 6500 1500 Manufacturing Cost per unit $51.00 $53.10 Answer - Requirement 2 Calculation of Full product cost per unit Standard Desk Unpainted Desk Manufacturing Cost per unit $51.00 $53.10 Premanufacturing Activity cost per unit $7.00 $2.00 Post-manufacturing cost per unit $23.00 $20.00 Full Product cots per unit $81.00 $75.10 Answer - Requirement 3 Full product cost are reported in the financial statements.Managers use variable product costing for decisions such as pricing and product emphasis.Full product cost include the fixed manufacturing overheads that are expensed as incurred for external reporting. However these costs often are period cost or sunk cost. Answer - Requirement 4 Calculation of price Prescott managers set for standard desk Standard Desk Full product cost per unit $81.00 Add : Profit Margin $42.00 Price set for Standard Desk $123.00