Question

Walton 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 Walton made 70,000 tennis racquets and 30,800 badminton racquets). Direct Cost Direct materials Direct labor Tennis Racquet (TR) $17.68 per unit 34.00 per unit Badminton Racquet (BR) $14.20 per unit 2 3.58 per unit Category Unit level Estimated Cost $ 660,000 Batch level Product level 254,182 160,000 640,000 Cost Driver Amount of Cost Driver Number of inspection hours hours TR: 15,900 hours; BR: 6,109 Number of setups TR: 81 setups; BR: 40' setups Number of TV commercials TR: 3; BR: 2 TR: 30,800 hours; BR: 33,280 Number of machine hours hours Facility level Total $1,714,100 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? < Prev 31 of 31 !!! Next > pe here to search

Answer 1

Overhead	Activity Cost	Quantity of cost driver	Activity Rate
a	b	c		d=b/c
Unit level	$        660,000	22000	Inspection hours	$            30	per Inspection hours
Batch level	$        254,100	121	Number of Setups	$      2,100	per Setups
Product level	$        160,000	5	TV Commercials	$    32,000	per TV Commercials
Facility level	$        640,000	64000	machine hours	$            10	per machine hours
	$    1,714,100

	Tennis Racquet	Badminton Racquet
Direct Material	$    1,232,000	$       437,360
Direct labor	$    2,380,000	$       723,800
Overhead
Unit level	$        477,000	$       183,000
Batch level	$        170,100	$         84,000
Product level	$          96,000	$         64,000
Facility level	$        308,000	$       332,000
Total Cost	$    4,663,100	$   1,824,160
Units	70000	30800
Cost per unit	$             66.62	$            59.23

B. Price of Racquet = $59.23 x 1.30 = $77 per unit