Chapter 5, Problem 5.25E

Activity-based costing, service company. Speediprint Corporation owns a small printing press that prints leaflets, brochures, and advertising materials Speediprint classifies its various printing jobs as standard jobs or special jobs. Speediprint’s simple job-costing system has two direct-cost categories (direct materials and direct labor) and a single indirect-cost pool. Speediprint operates at capacity and allocates all indirect costs using printing machine-hours as the allocation base.

Speediprint is concerned about the accuracy of the costs assigned to standard and special jobs and therefore is planning to implement an activity-based costing system. Speediprint’s ABC system would have the same direct-cost categories as its simple costing system. However, instead of a single indirect-cost pool there would now be six categories for assigning indirect costs: design, purchasing, setup, printing machine operations, marketing, and administration. To see how activity-based costing would affect the costs of standard and special jobs. Speediprint collects the following information for the fiscal year 2017 that just ended.

1. 1. Calculate the cost of a standard job and a special job under the simple costing system.

Required

1. 2. Calculate the cost of a standard job and a special job under the activity-based costing system.
2. 3. Compare the costs of a standard job and a special job in requirements 1 and 2. Why do the simple and activity-based costing systems differ in the cost of a standard job and a special job?
3. 4. How might Speediprint use the new cost information from its activity-based costing system to better manage its business?