Question

7. Diamond Cleats Co. manufactures cleats and baseball bats. It has outlined below the following over-head costs.

Support Activity	Budgeted Overhead	Cost Driver		Estimated Cost driver
Machine Time	$100,000	# of Machine Hrs		2,000
Quality Control	78,000	# of inspections		1,200
Materials Handling	1,200	# of batches		50
Other overhead costs	60,000	Direct Labor Hrs		5,000

Diamond Cleats Co. has on order for cleats and baseball bats that has the following production requirements.

                                                            Cleats               Baseball Bats

Number of Machine Hours                     220                   275

Number of Inspections                         75                    125      

Number of Batches                               8                      15                                                       

Direct Labor Hours                                840                   800

Units in Order                                       1,000                1,100

Diamond Cleats sells each pair of cleats for $75 a pair and sells each baseball bat for $65 a bat. Based on the information for the current order, create a product-line profitability analysis for both cleats and baseball bats.

Answer 1

		Cleats	Baseball bats
AnsweR:		Total	Per Unit	Total	Per Unit
	Sales Amount	75,000	75.00	71,500	65.00
	Less: Cost assigned to each product	26,147	26.15	31,835	28.94
	PRODUCT PROFITABILITY	48,853	48.85	39,665	36.06
NOTE 1	Activity Cost Pool	Estimated Overhead cost	Estimated Activity(Total)	Activity rate
	Machine time	100,000	2,000	50.00	per deliveries
	Quality control	78,000	1,200	65.00	per order
	Mat. Handling	1,200	50	24.00	per order
	Other OH Cost	60,000	5,000	12.00	per line item
	Total	239,200
Note 2		Activity rate	Cleats (cost driver)	Cleats	Baseball bats (Cost Driver)	Baseball bats
	Machine time	50.00	220	11,000	275	13,750
	Quality control	65.00	75	4,875	125	8,125
	Mat. Handling	24.00	8	192	15	360
	Other OH Cost	12.00	840	10,080	800	9,600
	Total activity cost			26,147		31,835
	No. of Units			1000		1100
	Cost per unit			26.15		28.94