Question

Horten 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 Horten made 70,000 tennis racquets and 30,000 badminton racquets).

   

Direct Cost	Tennis Racquet (TR)				Badminton Racquet (BR)
Direct materials	$	28	per unit		$	20	per unit
Direct labor		34	per unit			28	per unit

   

Category	Estimated Cost					Cost Driver	Amount of Cost Driver
Unit level		$	750,000			Number of inspection hours	TR: 15,000 hours; BR: 10,000 hours
Batch level			250,000			Number of setups	TR: 80 setups; BR: 45 setups
Product level			150,000			Number of TV commercials	TR: 4; BR: 1
Facility level			650,000			Number of machine hours	TR: 30,000 hours; BR: 35,000 hours
Total		$	1,800,000

   
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

Compute the cost per unit for each product.

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

Answer 1

	Activity rate		A	B	C=a/b
			Estimated	total
	Category		cost	cost drive
	unit level		750,000	25,000	30	per inspection hour
	batch level		250,000	125	2000	per setup
	product level		150,000	5	30000	per commerical
	facility level		650,000	65,000	10	per machine hours
	overhead allocated = activity rate * cost driver of each product
				tennis	Badmintom
	unit level			450000	300,000
	batch level			160000	90,000
	product level			120,000	30,000
	facility level			300,000	350,000
	total			1030000	770,000
	units prouced			70,000	30,000
	overhead cost per unit			14.71	25.67
1)		cost per unit of each product
				tennis	Badmintom
	Direct materials			28	20
	direct labor			34	28
	overhead cost			14.71	25.67
	cost per unit of each product			76.71	73.67
2)	price of badminton
	73.67*130%
	95.77	answer