Chapter 4, Problem 4.42AP

Use ABC to compute full product costs (Learning Objective 2)

Arnett Corp. manufactures computer desks in its White Bear Lake, Minnesota, plant. The company uses activity-based costing to allocate all manufacturing conversion costs (direct labor and manufacturing overhead). Its activities and related data follow:

Arnett produced two styles of desks in March: the Standard desk and the Unpainted desk. Data for each follow:

Requirements

1. 1. Compute the per-unit manufacturing product cost of Standard desks and Unpainted desks.
2. 2. Premanufacturing activities, such as product design, were assigned to the Standard desks at $6 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 $22 per Standard and $19 per Unpainted desk. Compute the full product costs per desk.
3. 3. Which product costs are reported in the external financial statements? Which costs are used for management decision making? Explain the difference.
4. 4. What price should Arnett’s managers set for Standard desks to earn a $42 profit per desk?