which product costs are reported in the external financial statements which costs ar 645258

Product costing in an ABC system  Prescott, Inc., manufactures bookcases and uses an activity based costing system. Prescott’s activity areas and related data follow:

	Budgeted Cost		Cost
Activity	of Activity	Allocation Base	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:

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