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 68,500 tennis racquets and 29,000 badminton racquets).

Direct Cost	Tennis Racquet (TR)				Badminton Racquet (BR)
Direct materials	$	19.10	per unit		$	13.60	per unit
Direct labor		31.50	per unit			25.90	per unit

Category	Estimated Cost					Cost Driver	Amount of Cost Driver
Unit level		$	667,000			Number of inspection hours	TR: 15,800 hours; BR: 7,200 hours
Batch level			297,600			Number of setups	TR: 76 setups; BR: 48 setups
Product level			150,000			Number of TV commercials	TR: 4; BR: 1
Facility level			621,000			Number of machine hours	TR: 30,600 hours; BR: 38,400 hours
Total		$	1,735,600

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

	Activity rate		A	B	C=a/b
			Estimated	total
	Category		cost	cost drive
	unit level		667,000	23,000	29	per inspection hour
	batch level		297,600	124	2400	per setup
	product level		150,000	5	30000	per commerical
	facility level		621,000	69,000	9	per machine hours
			1,735,600
	overhead allocated = activity rate * cost driver of each product
				tennis	Badmintom
	unit level			458200	208,800				667000
	batch level			182400	115,200				297600
	product level			120,000	30,000				150,000
	facility level			275,400	345,600				621,000
	total			1036000	699,600				1735600
	units prouced			68,500	29,000
	overhead cost per unit			15.12	24.12
1)		cost per unit of each product
				tennis	Badmintom
	Direct materials			19.1	13.6
	direct labor			31.5	25.9
	overhead cost			15.12	24.12
	cost per unit of each product			65.72	63.62
2)	price of badminton
	63.62*130%
	69.71	answer