Question

Thornton 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 Thornton made 71,500 tennis racquets and 30,600 badminton racquets).

Direct Cost	Tennis Racquet (TR)				Badminton Racquet (BR)
Direct materials	$	18.10	per unit		$	13.10	per unit
Direct labor		33.50	per unit			26.50	per unit

Category	Estimated Cost					Cost Driver	Amount of Cost Driver
Unit level		$	775,000			Number of inspection hours	TR: 15,500 hours; BR: 9,500 hours
Batch level			252,000			Number of setups	TR: 76 setups; BR: 44 setups
Product level			140,000			Number of TV commercials	TR: 3; BR: 2
Facility level			528,000			Number of machine hours	TR: 31,400 hours; BR: 34,600 hours
Total		$	1,695,000

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?

Required A

Compute the cost per unit for each product. (Round intermediate calculations and final answers to 2 decimal places.)

Type of Product	Cost per Unit
Tennis Racquet
Badminton Racquet

Required B

If management wants to price badminton racquets 30 percent above cost, what price should the company set? (Round intermediate calculations and final answer to 2 decimal places.)

Price of badminton

Answer 1

Solution

Thornton Sporting Goods Company

Computation of cost per unit of each product –

Computations –

Determination of overhead assigned to each product-

1. Activity rate –

2. Allocation of overhead cost to products -

3. total cost per unit -

b.

a. Determination of price if 30% above cost –

Tennis Racquet –

Cost per unit = $65.24

Add: 30%        = $19.57

Price per unit = $84.81

Badminton racquet –

Cost per unit = $63.12

Add: 30% = $18.94

Price per unit = $82.10