Prescott, Inc., manufactures bookcases and uses an activity-based costing system. Prescott's activity areas and related data follows:
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 35,000 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?