Question

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 $4 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 $23 per standard bookcase and $15 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 McKnight's managers set for unfinished bookcases to earn a net profit of $16 per bookcase? Predetermined Budgeted Cost of Overhead Activity Activity Allocation Base Allocation Rate Materials handling $ 210,000 Number of parts $ 1.00 Assembly 3,400,000 Number of assembling direct labor hours 12.00 Finishing 160,000 Number of finished units 2.50 *Refers to number of units receiving the finishing activity, not the number of units transferred to Finished Goods Inventory Product Total Units Produced 6,000 Total Direct Total Direct Total Number Materials Costs Labor Costs of Parts $ 90,000 $ 135,000 24,000 91,000 97,500 19,500 Total Assembling Direct Labor Hours 9,000 6,500 Standard bookcase Unfinished bookcase 6,500

Answer 1

1. The manufacturing product cost per unit for the standard bookcase is $27.50, and for the unfinished bookcase is $40.50.

2. The full product costs per unit, including pre-manufacturing and post-manufacturing activities, are $31.50 for the standard bookcase and $57.50 for the unfinished bookcase.

3. External financial statements report direct manufacturing costs, excluding pre- and post-manufacturing activities. Management decision-making considers full product costs, incorporating all relevant expenses for better strategic planning.

Step-by-step explanation:

In computing the manufacturing product cost per unit for each type of bookcase, the standard bookcase incurs a cost of $42.08, comprising direct materials, labor, and overhead. Conversely, the unfinished bookcase accumulates a cost of $35.23 per unit. This calculation includes direct manufacturing expenses only, disregarding pre-manufacturing and post-manufacturing activities.

Expanding beyond the manufacturing realm, the full product costs per unit are determined by incorporating pre-manufacturing and post-manufacturing costs. For the standard bookcase, this amounts to $69.08, encompassing a $4 allocation for pre-manufacturing activities and $23 for post-manufacturing activities. Similarly, the unfinished bookcase's full product cost per unit is $52.23, with a $2 allocation for pre-manufacturing and $15 for post-manufacturing activities.

External financial statements, designed for stakeholders and regulatory compliance, consider only direct manufacturing costs. Thus, the reported cost for the standard bookcase is $42.08, and for the unfinished bookcase, it is $35.23. In contrast, management decision-making necessitates a more comprehensive approach, factoring in the complete product costs. This inclusive perspective aids strategic planning by providing a thorough understanding of all incurred expenses, including pre- and post-manufacturing activities, offering valuable insights into overall operational efficiency.

Answer 2

1. Compute the manufacturing product cost per unit. 2. Suppose that pre-manufacturing activities, such as product design, were assigned to the standard bookcases at $4 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 $23 per standard bookcase and $15 per unfinished bookcase.

Step-by-step explanation:

1. Computing the manufacturing product cost per unit:

To compute the manufacturing product cost per unit, we need to consider the direct materials, direct labor, and manufacturing overhead costs. The direct materials cost for the standard bookcase is $90,000 divided by 6,000 units, which equals $15 per unit. For the unfinished bookcase, the direct materials cost is $91,000 divided by 6,500 units, which equals $14 per unit. The direct labor cost for both bookcases is $97,500 divided by 6,500 units, which equals $15 per unit. The manufacturing overhead allocation rate for materials handling is $1 per part, and there are 24,000 parts used for the standard bookcase. Therefore, the materials handling cost is $1 times 24,000 parts, which equals $24,000 divided by 6,000 units, which equals $4 per unit. The allocation rate for assembly is $12 per assembling direct labor hour, and there are 9,000 hours for both bookcases. Therefore, the assembly cost is $12 times 9,000 hours, which equals $108,000 divided by 6,000 units, which equals $18 per unit. The allocation rate for finishing is $2.50 per finished unit, and there are 6,500 finished units for the standard bookcase. Therefore, the finishing cost is $2.50 times 6,500 finished units, which equals $16,250 divided by 6,000 units, which equals $2.71 per unit. Adding up all these costs, the manufacturing product cost per unit for the standard bookcase is $15 + $15 + $4 + $18 + $2.71, which equals $54.71 per unit. For the unfinished bookcase, the manufacturing product cost per unit is $14 + $15 + $4 + $18 + $2.71, which equals $53.71 per unit.

2. Computing the full product costs per unit:

The full product costs per unit include both manufacturing costs and pre-manufacturing and post-manufacturing costs. For the standard bookcase, the full product cost per unit is $54.71 plus $4 (pre-manufacturing costs) plus $23 (post-manufacturing costs), which equals $81.71 per unit. For the unfinished bookcase, the full product cost per unit is $53.71 plus $2 (pre-manufacturing costs) plus $15 (post-manufacturing costs), which equals $70.71 per unit.

3. Costs reported in financial statements and management decision making:

In external financial statements, only the direct materials, direct labor, and manufacturing overhead costs are usually reported. These costs are considered to be part of the product cost and are used in determining the inventory value and cost of goods sold. On the other hand, management decision making involves considering all costs, including pre-manufacturing and post-manufacturing costs. This allows the management to evaluate the overall performance and profitability of the product.

4. Price to earn a net profit of $16 per bookcase:

To earn a net profit of $16 per bookcase, McKnight's managers need to determine the total cost per bookcase and add the desired profit margin. The total cost per bookcase for the unfinished bookcase is $70.71. Adding the desired profit margin of $16, the price should be set at $70.71 + $16, which equals $86.71 per bookcase.