Question

Adams 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 Adams made 70,000 tennis racquets and 29,400 badminton racquets).

   

Direct Cost	Tennis Racquet (TR)				Badminton Racquet (BR)
Direct materials	$	17.60	per unit		$	14.60	per unit
Direct labor		34.50	per unit			27.50	per unit

   

Category	Estimated Cost					Cost Driver	Amount of Cost Driver
Unit level		$	784,000			Number of inspection hours	TR: 15,700 hours; BR: 12,300 hours
Batch level			344,400			Number of setups	TR: 76 setups; BR: 47 setups
Product level			142,500			Number of TV commercials	TR: 4; BR: 1
Facility level			630,000			Number of machine hours	TR: 30,400 hours; BR: 32,600 hours
Total		$	1,900,900

   
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

1. Compute the cost per unit for each product.

2. If management wants to price badminton racquets 30 percent above cost, what price should the company set?

Answer 1