Question

In: Accounting

Zarson​'s Netballs is a manufacturer of​ high-quality basketballs and volleyballs. Setup costs are driven by the...

Zarson​'s Netballs is a manufacturer of​ high-quality basketballs and volleyballs. Setup costs are driven by the number of batches. Equipment and maintenance costs increase with the number of​ machine-hours, and lease rent is paid per square foot. Capacity of the facility is 14 comma 000 square​ feet, and Zarson is using only 80​% of this capacity. Zarson records the cost of unused capacity as a separate line item and not as a product cost. The following is the budgeted information for Zarson​:

Zarson's Netballs

Budgeted Costs and Activities

For the Year Ended December 31, 2017

Direct materials—basketballs

$168,100

Direct materials—volleyballs

303,280

Direct manufacturing labor—basketballs

111,800

Direct manufacturing labor—volleyballs

100,820

Setup

157,500

Equipment and maintenance costs

115,200

Lease rent

210,000

Total

$1,166,700

Other budget information​ follows:

Basketballs

Volleyballs

Number of balls

58,000

85,000

Machine-hours

13,500

10,500

Number of setups

450

300

Square footage of production space used

3,200

8,000

Calculate the cost per unit of cost driver for each indirect cost pool.

Select the formula you will​ use, then calculate the cost driver rate.​ (Round your answers to the nearest cent. Abbreviations​ used: "equip."​ = equipment,​ "maint." =​ maintenance.)

?

/

?

=

Cost driver rate

Setup

/

=

per setup

Equip. and Maint.

/

=

per machine hour

Lease rent, etc.

/

=

per square foot

Requirement 2. What is the budgeted cost of unused​ capacity?

Select the formula you will​ use, then calculate the cost of unused capacity.

Select the formula you will​ use, then calculate the cost of unused capacity.

?

x

?

=

Cost of unused capacity

x

=

Requirement 3. What is the budgeted total cost and the cost per unit of resources used to produce​ (a) basketballs and​ (b) volleyballs?​ (Enter the cost per unit to the nearest​ cent.)

BASKETBALL

VOLLEYBALLS

TOTALS

Direct materials

Direct manufacturing labor

Setup

Equipment and maintenance

Lease rent, etc

Budgeted total costs

Number of Units

Budgeted cost per Unit

Requirement 4. Why might excess capacity be beneficial for Zarson​? What are some of the issues Zarson should consider before increasing production to use the​ space?

Why might excess capacity be beneficial for Zarson​? ​(Select all that​ apply.)

The excess capacity could allow for expanded production of either of the existing models.

B. The excess capacity is costing Zarson money​ and, therefore, cannot be beneficial to Zarson.

C. Having excess capacity allows for the company to accept special orders if they are received.

D. The company could consider adding a new product line.

What are some of the issues Zarson should consider before increasing production to use the​ space? ​(Select all that​ apply.)

A. The company should consider how much they could take in in rent if they opt to rent out the unused space.

B. The company should consider if there is available labor and machine hours before increasing production to use the space.

C. The company should consider the capital investment needed to start and support a new product​ line, as well as the demand for a new product.

D. None of the above.

Solutions

Expert Solution

ques 1. Calculate the cost per unit of cost driver for each indirect cost pool.

- basketball volleyball total

no. of batches 450 300 750

machine hours 13500 10500 24000

set up cost per batch - 157500/750 = 210 per batch

equipment and maintainence - 115200/24000 = 4.8 per machine hour.

lease, rent, insurance- 210000/14000 = 15 per sq. fit

ques 2

What is the budgeted cost of unused​ capacity?

unused capacity = total capacity - capacity used for basketball production- cap. used for volleyb.

= 14000-3200-8000 = 2800

cost of unused capacity = 15 x 2800 = 42000

ques 3

basketball volleyball total

direct material 168100 303280 471380

direct man. labour 111800 100820 212620

setup(210x450;300) 94500 63000 157500

equip.(4.8x13500;10500) 64800 50400 115200

lease rent(15x3200;8000) 48000 120000 168000

budgtd total cost 487200 637500 1124700

div. by no. of units 58000 85000

budgeted cost per unit 8.40 7.50

ques 4

Currently, Zarson’s only utilizes 80% of its available capacity. Managers should considerwhether the excess capacity is sufficient to produce footballs. Other issues to consider includedemand for the proposed product, the competition, capital investment needed to start and supportthis product line, and the availability of skilled and unskilled labor needed to manufacture footballs.


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