What differentiates “discretionary financing needs” from “external financing needs?”
December 29, 2017
Vice President of Operations Management
December 29, 2017

rintware Products, Inc. produces printers for wholesale distributors. It has just completed packaging an order from Hawes Company for 450 printers.

Question
P4-2 Printware Products, Inc. produces printers for wholesale distributors. It has just completed packaging an order from Hawes Company for 450 printers. Before the order is shipped, the controller wants to compare the unit costs computed under the company’s new activity-based costing system with the unit costs computed under its traditional costing system. Printware’s traditional costing system assigned overhead costs at a rate of 240 percent of direct labor cost.
Data for the Hawes order are as follows: direct materials, $17,552; purchased parts, $14,856; direct labor hours, 140; and average direct labor pay rate per hour, $17.
Data for activity-based costing related to processing direct materials and purchased parts for the Hawes order follow.
Activity Cost Driver Activity Cost Rate Activity Usage
Engineering systems design Engineering hours $ 28 per engineering hour 18 engineering hours
Setup Number of setups $ 36 per setup 12 setups
Parts production Machine hours $ 37 per machine hour 82 machine hours
Product assembly Assembly hours $ 42 per assembly hour 96 assembly hours
Packaging Number of packages $ 5.60 per package 150 packages
Building occupancy Machine hours $ 10 per machine hour 82 machine hours

Required
If required, round the per unit answers to the nearest cent.
1. Use the traditional costing approach to compute the total cost and the product unit cost of the Hawes order.
Total cost $
Product unit cost $

  1. Using the cost hierarchy, identify each activity as unit level, batch level, product level, or facility level.
    Engineering systems design
    Setup
    Parts production
    Product assembly
    Packaging
    Building occupancy

  2. Prepare a bill of activities for the activity costs.
    Printware Products, Inc.
    Bill of Activities
    Hawes Order
    Activity Activity Cost Rate Cost Driver Level Activity Cost
    Unit level
    Parts production $ per machine hour machine hours $
    Product assembly $ per assembly hour assembly hours
    Packaging $ per package packages
    Batch level
    Setup $ per setup setups
    Product level
    Engineering systems design $ per engineering hour engineering hours
    Facility level
    Building occupancy $ per machine hour machine hours
    Total activity costs assigned to job $
    Total units of job
    Activity costs per unit $

  3. Use ABC to compute the total cost and product unit cost of the Hawes order.
    Cost summary
    Direct materials $
    Purchased parts
    Activity costs
    Total cost of order $
    Product unit cost $

  4. What is the difference between the product unit cost you computed using the traditional approach and the one you computed using ABC?

 

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