Question

Franklin 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 Franklin made 72,000 tennis racquets and 30,400 badminton racquets).

Direct Cost	Tennis Racquet (TR)				Badminton Racquet (BR)
Direct materials	$	17.60	per unit		$	15.10	per unit
Direct labor		31.00	per unit			23.30	per unit

Category	Estimated Cost					Cost Driver	Amount of Cost Driver
Unit level		$	725,000			Number of inspection hours	TR: 15,900 hours; BR: 9,100 hours
Batch level			264,600			Number of setups	TR: 85 setups; BR: 41 setups
Product level			157,500			Number of TV commercials	TR: 3; BR: 2
Facility level			540,000			Number of machine hours	TR: 31,800 hours; BR: 28,200 hours
Total		$	1,687,100

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

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

a)	Cost per unit computation
			TR	BR
	Direct Materials		$   17.60	$   15.10
	Direct Labor		$   31.00	$   23.30
	OH		$   14.17	$   21.93
			$   62.77	$   60.33
b)			TR	BR
	Cost per unit		$   62.77	$   60.33
	Mark up @ 30%		$   18.83	$   18.10
	Selling price		$   81.60	$   78.43

Workings:

			Amount of		Activity
Category		Estd. Cost	Cost driver		Rate
Unit level		725000	25000	(15900 + 9100)	$         29.00
Batch level		264600	126	(85 + 41)	$   2,100.00
Product level		157500	5	(3 + 2)	$ 31,500.00
Facility level		540000	60000	(31800 + 28200)	$           9.00

Cost Allocation
Category		TR		BR
Unit level		$   4,61,100.00	(15900 x $ 29)	$ 2,63,900.00	(9100 x $ 29)
Batch level		$   1,78,500.00	(85 x $ 2100)	$    86,100.00	(41 x $ 2100)
Product level		$      94,500.00	(3 x $ 31500)	$    63,000.00	(2 x $ 31500)
Facility level		$   2,86,200.00	(31800 x $ 9)	$ 2,53,800.00	(28200 x $ 9)
		$ 10,20,300.00		$ 6,66,800.00
No. of units		72000		30400
OH per unit		$              14.17		$            21.93