Question

Rundle Sporting Goods Corporation makes two types of racquets, tennis and badminton. The company uses the same facility to make both products even though the processes are quite different. The company has recently converted its cost accounting system to activity-based costing. The following are the cost data that Jane Price, the cost accountant, prepared for the third quarter of 2018 (during which Rundle made 71,500 tennis racquets and 29,600 badminton racquets). Direct Cost Direct materials Direct labor Tennis Racquet (TR) $15.10 per unit 32.00 per unit Badminton Racquet (BR) $15.00 per unit 27.90 per unit Category Unit level Batch level Product level Facility level Estimated Cost $ 651,000 305,000 145,000 544,000 $1,645,000 Cost Driver Number of inspection hours Number of setups Number of TV commercials Number of machine hours Amount of Cost Driver TR: 14,100 hours; BR: 6,900 hours TR: 76 setups; BR: 46 setups TR: 4; BR: 1 TR: 30,400 hours; BR: 37,600 hours Total Inspectors are paid according to the number of actual hours worked, which is determined by the number of racquets inspected. Engineers who set up equipment for both products are paid monthly salaries. TV commercial fees are paid at the beginning of the quarter. Facility-level cost includes depreciation of all production equipment. Required a. Compute the cost per unit for each product. b. If management wants to price badminton racquets 30 percent above cost, what price should the company set?

Answer 1

Calculation of cost per unit
				Tennis Racquet		Badminton Racquet
Cost Pool	Estimated cost	Total Driver	Activity Rate = Overheads/Driver	Driver Consumed	Overhead assigned = Driver consumed*Rate	Driver Consumed	Overhead assigned = Driver consumed*Rate
Unit Level	651,000	21,000	31	14,100	437,100	6,900	213,900
Batch Level	305,000	122	2,500	76	190,000	46	115,000
Product Level	145,000	5	29,000	4	116,000	1	29,000
Facility Level	544,000	68,000	8	30,400	243,200	37,600	300,800
				Total	986,300		658,700
				Number of Units	71,500		29,600
				Overhead cost per unit	13.79		22.25
Cost per unit
	Tennis Racquet	Badminton Racquet
Direct material	15.1	15
Direct labor	32	27.9
Overhead	13.79	22.25
Cost per unit	60.89	65.15
Price	79.16	84.70