Question

Steve Rogers recently started a job as an administrative assistant in the cost accounting department of Mickey Manufacturing. New to the area of cost accounting, Steve is puzzled by the fact that one of Mickey's manufactured products, R2D2, seems to have a different cost, depending on who asks for it. When the marketing department requested the cost of R2D2 in order to determine pricing for the new catalog, Steve was told to report one amount, but when a request came in the very next day from the financial reporting department, the cost of R2D2, she was told the cost was very different Steve runs a report using Mickey's cost accounting system, which produces the following cost elements for one unit of R2D2. Direct Materials Direct Manufacturing Labor Variable Manufacturing Overhead Allocated Fixed Manufacturing Overhead Research and development costs specific to RCP10* Marketing Costs Sales Commissions Allocated administrative costs of production department Allocated administrative costs of corporate headquarters Customer service costs Distribution costs $30.00 $17.00 $9.00 $ 33.00 $6.00 $ 7.00 $12.00 $ 5.00 $18.00 $ 3.00 $ 9.00 these costs are specific to R2D2 but would not be eliminated if R2D2 were purchased from an outside supplier. Required: 1. Explain to Steve why the costs given to the marketing and financial reporting departments would be different. 2. Calculate the cost of one unit of RCP10 to determine the following: a. The selling price of RCP10 b. The cost of inventory for financial reporting c. The ability of Mickey's production manager to control costs.

Answer 1

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Part 1
Financial reporting is guided by GAAP and only inventorieable cost such as Direct Material
Direct Labor, Overheads are included in cost for Financial Departments.
However on the other hand, for marketing decision making, only releavant cost is included.
and Hence there is difference.
Part 2
	a.	b.	c.
Direct materials	$     30.00	$                      30.00	$     30.00
Direct manufacturing labor	$     17.00	$                      17.00	$     17.00
Variable manufacturing overhead	$        9.00	$                        9.00	$        9.00
Allocated fixed manufacturing overhead	$     33.00	$                      33.00	$     33.00
Research and development costs specific to SR460	$        6.00
Marketing costs	$        7.00
Sales commissions	$     12.00
Allocated administrative costs of production depart.	$        5.00		$        5.00
Allocated administrative costs of corporate headquarters	$     18.00
Customer service costs	$        3.00
Distribution costs	$        9.00
Total	$   149.00	$                      89.00	$     94.00