Question

UrbanzPrint is a t-shirt printing firm. It separates printing orders into batches and tracks costs by order number. UrbanzPrint purchases and holds an 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 the 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 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 labor - $7.00 per t-shirt

Factory overhead – 20% of direct labor costs

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

1. The silk-screen is custom-made with the design as required by the customer and is needed to print the customer’s design and organization 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.
2. 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 totaled $20 while the additional labor cost totaled $60. The usual overhead application applies.
3. 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 the customer’s organization logo and sell them as sleeveless to its (UrbanzPrint) employees for $10 each. Additional costs incurred totaled $1.00 per t-shirt.
4. These 20 t-shirts had to be replaced and incremental costs incurred for the replacement were similar to the initial costs incurred.
5. 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:

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.

Answer 1

Calculation of Cost incurred for completing order # U12.

Particulars	Amount ($)	Working Note Reference
Cost of Plain T-Shirts	4960	2
Add :Cost of Paints	1400
Add : Cost of Design and Making of Silk Screen	2000
Add : Labour Cost	4400	3
Add: Factory Overhaed @ 20% of Labour Cost ($ 4400*20%)	880
Add; Cost of mistake in Making Silk - Screen	100
Add ; Additional Paaint cost incurred for correcting 40 t-shirts	20
Add ; Additional Cost Incured on 20 T-shirts for making them Sleeve Less	20	4
Less : Revenue on 20 t-shirts sold as sleeve Less	200	5
Less ; Cost of paints Transfered to order # U26	160
Total Cost of order #U12	13420

WORKINGS:

1. Cost of 1 plain t-shirt.

cost of 600 plain T-Shirts = $ 4800

cost of 1 plain t-shirt =$ 4800/600 = $ 8

2. Cost of 20 Plain T-Shirt printed later for 20 t-shirts that were burnt during Ironing = 20* $8 = $160

Total Cost of Plain T-Shirts = $ 4800+$ 160 = $ 4960

3. Labour Cost = (600*$7)+$60+$140 = $4200+$200 = $4400

Additinal Cost for correcting 40 T-Shirts = $ 60

Additional for making 20 T-Shirts which were burnt During Ironing = 20* $7 =$ 140

4. Additional Cost on 20 T-shirts which were burnt during Ironing= 20* $1 = $ 20

5. Revenue on 20 T-shirts which were burnt during Ironing = 20 * $ 10 = $200