Question

Rosie Learns, Inc. manufactures robots and uses an activity-based costing system. Rosie Learns’ activities and related data are listed below:

Activity	Budgeted Cost	Allocation Base	Predetermined Overhead Allocation Rate
Materials Handling	$230,000	Number of Parts	$1.50
Assembly	3,200,000	Number of assembling direct labor hours	16.00
Finishing	150,000	Number of finished units*	3.00

*The number of units receiving the finish activity, not the number of units transferred to Finished Goods Inventory.

Rosie Learns produces two models of robots, the Rosie V and the Rosie X. The Rosie X has fewer parts and requires no finishing work.

Product	Total Units Produced	Total Direct Materials Costs	Total Direct Labor Costs	Total Number of Parts	Total Assembling Direct Labor Hours
Rosie V	3,000	54,000	67,500	8,000	4,500
Rosie X	3,500	56,000	52,500	6,000	3,500

Requirements:

1. Compute the manufacturing product costs per unit of each model of robot.
2. Suppose that pre-manufacturing activities, such as product design were assigned to Roxie V at $8 each and to Rosie X at $5 each. Similar analyses were done on post-manufacturing actives such as distribution, marketing, and customer service. The post-manufacturing costs were $18 for Rosie V and $14 for Rosie X. What is 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? What is the difference?
4. What price should Rosie Learns set for Rosie X to earn a target net profit of $20 per robot?

Answer 1

				A	B	C=A*B	D	E=A*D
					ROSIE V		ROSIE X
	Activity	Budgeted Cost	Allocation Base	Predetermined Overhead Allocation Rate	Activity Volume	Allocated Overhead	Activity Volume	Allocated Overhead
	Materials Handling	$230,000	Number of Parts	$1.50	8000	$12,000	6000	$9,000
	Assembly	3,200,000	Number of assembling direct labor hours	16	4500	$72,000	3500	$56,000
	Finishing	150,000	Number of finished units*	3	3000	$9,000	0	$0
				TOTAL		$93,000		$65,000
		ROSIE V			ROSIE X
		Total Cost	Units produced	Cost per unit	Total Cost	Units produced	Cost per unit
	Direct Materials	$54,000	3000	$18	$56,000	3500	$16
	Direct labor	$67,500	3000	$23	$52,500	3500	$15
	Allocated Overhead	$93,000	3000	$31	$65,000	3500	$19
			TOTAL	$72		TOTAL	$50
	Manufacturing Product Cost per unit of ROSIE V	$72
	Manufacturing Product Cost per unit of ROSIE X	$50
		ROSIE V	ROSIE X
	Manufacturing Product Cost per unit	$72	$50
	Pre-manufacturing activities cost	$8	$5
	Post manufacturing costs	$18	$14
	Full product cost per unit	$98	$69
	Cost of sales reported in externalfinancial statement	$80	$55	(Pre manufacturing costs are added as part of manufacturing overhead)
	Costs used in management decision making	$98	$69	(Totalvariable costs are used for decisions like product profitability, product portfolio, pricing etc)
	Target Net Profit	$20	$20
	Price tobe set	$118	$89