In: Accounting
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 |
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Setup |
/ |
= |
per setup |
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Equip. and Maint. |
/ |
= |
per machine hour |
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Lease rent, etc. |
/ |
= |
per square foot |
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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 |
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Direct materials |
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Direct manufacturing labor |
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Setup |
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Equipment and maintenance |
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Lease rent, etc |
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Budgeted total costs |
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Number of Units |
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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.
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.