McKnight, Inc., manufactures bookcases and uses an activity-based costing system. McKnight€™s activity areas and related data follow:

McKnight produced two styles of bookcases in April: 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:

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 $4 each, and to the unfinished bookcases at $3 each. Similar analyses were conducted of post-manufacturing activities such as distribution, marketing, and customer service. The post-manufacturing costs were $20 per standard bookcase and $15 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 McKnight€™s managers set for unfinished bookcases to earn $16 perbookcase?

Transcribed Image Text:

Budgeted Cost of Activity 240,000 3,300,000 150,000 Cost Allocation Rate Allocation Basc Number of parts Diroct labor hours Number of finished units Activity Materials handling $ Assembly 1.00 17.00 2.50 Finishing