ArtprintArtprint Corporation owns a small printing press that prints leaflets, brochures, and advertising materials. ArtprintArtprint classifies its various printing jobs as standard jobs or special jobs

To see how activity-based costing would affect the costs of standard and special jobs,

Artprint collects the following information for the fiscal year 2017 that just ended.

Cost of supplies per job
Direct manufacturing labor cost per job
Indirect cost allocated to each job
Total costs

Special

Job

Requirement 2. Calculate the cost of a standard job and a special job under the activity-based costing system.

Begin by calculating the allocation rates for the following activities. (Abbreviations used: $ = Dollar, DM = Direct manufacturing, Qty. = Quantity. Round the allocation rates to the nearest cent for all activities exceptAdministration; round Administration to five decimal places, X.XXXXX.)

		/		=	ABC Allocation rate
Machine operations		/		=

Setups

/

=

Purchase orders

/

=

Administration

/

=

Now, completing the table for total costs of standard jobs, special jobs and then cost per job for each type of job. (Round your answers to the nearest whole dollar except cost per job. Round cost per job to the nearestcent.)

	Standard
ABC Costing System	Job
Cost of supplies
Direct manufacturing labor costs
Indirect costs allocated:
Machine operations
Setups
Purchase orders
Design
Marketing
Administration
Total costs

Special

Job

Cost of each job

Requirement 3. Compare the costs of a standard job and a special job in requirements 1 and 2. Why do the simple and activity-based costing systems differ in the cost of a standard job and a special job?

Standard jobs cost

less

more

under the simple costing system than under the activity-based costing system. Special jobs cost

less

more

under the simple costing sytem than under the activity-based costing system. Relative to the ABC system, the simple costing system

overcosts

undercosts

standard jobs and

overcosts

undercosts

special jobs.

Requirement 4. How might

ArtprintArtprint

use the new cost information from its activity-based costing system to better manage its business?

A.Under the simple system,

ArtprintArtprint

was making a gross margin of

3232%

on each standard job and

3838%

on each special job. But, the ABC system reveals that it is actually making a gross margin of about

3636%

on each standard job and about

3232%

on each special job. Depending on the market competitiveness,

ArtprintArtprint

may either want to reprice the different types of jobs, or, it may choose to market

special jobsspecial jobs

more aggressively than before.

B.Under the simple system,

ArtprintArtprint

was making a gross margin of

3232%

on each standard job and

3838%

on each special job. But, the ABC system reveals that it is actually making a gross margin of about

3636%

on each standard job and about

3232%

on each special job. Depending on the market competitiveness,

ArtprintArtprint

may either want to reprice the different types of jobs, or, it may choose to market

standard jobsstandard jobs

more aggressively than before.

C.Under the simple system,

ArtprintArtprint

was making a gross margin of

3838%

on each standard job and

3232%

on each special job. But, the ABC system reveals that it is actually making a gross margin of about

3232%

on each standard job and about

3636%

on each special job. Depending on the market competitiveness,

ArtprintArtprint

may either want to reprice the different types of jobs, or, it may choose to market

special jobsspecial jobs

more aggressively than before.

D.

None of the above. The new cost information would have no impact on how the company manages its business.

Cause-and-Effect Relationship Between

Standard Job

Special Job

Total

Allocation Base and Activity Cost

Number of printing jobs

1,600

800

Price per job

$1,400

$2,100

Cost of supplies per job

$75

$330

Direct labor costs per job

$160

$270

Printing machine-hours per job

10

10

Cost of printing machine operations

$648,000

Indirect costs of operating printing machines

increase with printing machine-hours

Setup-hours per job

8

9

Setup costs

$600,000

Indirect setup costs increase with setup-hours

Total number of purchase orders

330

430

Purchase order costs

$26,600

Indirect purchase order costs increase with

number of purchase orders

Design costs

$10,000

$34,000

$44,000

Design costs are allocated to standard and special

jobs based on a special study of the design department

1.	Calculate the cost of a standard job and a special job under the simple costing system.
2.	Calculate the cost of a standard job and a special job under the activity-based costing system.
3.	Compare the costs of a standard job and a special job in requirements 1 and 2. Why do the simple and activity-based costing systems differ in the cost of a standard job and a special job?
4.	How might ArtprintArtprint use the new cost information from its activity-based costing system to better manage its business?