UrbanzPrint purchases and holds inventory of plain t-shirts of various qualities and sizes so that when an order is received, sufficient varieties of t-shirts are available for customers to choose from. The firm uses FIFO method for inventory valuation as these t-shirts are purchased over different time periods and at different prices. The factory currently being occupied is rented but the management of UrbanzPrint is considering buying a new and bigger factory so as to house more t-shirt printing equipment as part of their future expansion plans. The marketing executive is currently working with the advertising agency to increase on their sales promotion coverage so as to enhance their market share.

For the month just ended, UrbanzPrint completed an order to print 600 t-shirts (Order# U12) for a large corporation's social event. The following initial costs were incurred:

Costs specific to Order# U12:$

Plain t-shirts$4,800

Paints (sufficient for 700 t-shirts) $1,400

Design and making of silk-screen $2,000

Applied costs:

Direct labour - $7.00 per t-shirt

Factory overhead - 20% of direct labour costs

In addition to the above costs, the following were incurred unexpectedly:

(i) The silk-screen is custom-made with the design as required by customer and is needed to print the customer's design and organisation logo onto the t-shirts. It is a one-off cost. An error was committed when making the silk-screen, resulting in 40 t-shirts being printed with a slightly wrong design. The silk-screen had to be corrected at a cost of $100.

(ii) The mistake on the 40 t-shirts could be corrected by covering up the mistake with white paint. This was done and they passed off as good units. The additional white paint totalled $20 while the additional labour cost totalled $60. The usual overhead application applies.

(iii) Another 20 t-shirts had their sleeves accidentally burnt when they were being ironed at the end of the printing process. UrbanzPrint decided to cut off the sleeves, blank out thecustomer's organisation logo and sell them as sleeveless to its (UrbanzPrint) employees for $10 each. Additional costs incurred totalled $1.00 per t-shirt.

(iv) These 20 t-shirts had to be replaced and incremental costs incurred for the replacement were similar to the initial costs incurred.

(v) The excess paint left over after completing Order# U12 was used for another job, Order# U26. It was decided that a cost transfer of $160 should be made from Order# U12 to Order# U26.

Required:

1. Prepare a report to compute the total and unit costs required to complete Order# U12. List all cost components and show all workings, rounding your answers to two decimal places where applicable.

2. Briefly explain whether the unit cost computed above is a "true" product cost, in the sense

of absolute authenticity and verifiability. Cite two examples from UrbanzPrint to support

your answer. (questions to answer)