Question

Wybock​'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 15,000 square​ feet, and Wybock is using only 60​% of this capacity. Wybock records the cost of unused capacity as a separate line item and not as a product cost. The following is the budgeted information for Wybock​:

Wybock's Netballs
Budgeted Costs and Activities
For the Year Ended December 31, 2017
Direct material-basketballs	$ 220,660
Direct material-volleyballs	223,290
Direct manufacturing labor-basketballs	110,600
Direct manufacturing labor-volleyballs	110,250
Setup	115,500
Equipment and maintenance costs	96,600
Lease rent	180,000
Total	1,056,900

Other budget information follows:
	Basketballs	Volleyballs
Number of balls	58,000	75,000
Machine-hours	12,000	11,000
Number of setups	150	400
Square footage of production space used	3,270	5,730

Question:

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

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

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

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

Answer 1

Requirement 1 :
Set up costs				$     115,500
Total number of set ups				550
Cost per set up = 115500/550				$           210
b. Equipment & Maintenance Cost				$      96,600
Total Machine Hours =				$      23,000
Equipment & Maintenance Cost per Machine Hour =				$          4.20
c. Lease Rent (Allocable to Departments)= 180000*60%				$     108,000
Total Area Used = 15000*60%				9000	Square Footage
Rent per Square Footage				$            12
Requirement 2 :
Cost of Unused Capacity = Rent Paid for unused space
Cost of Unused Capacity = 180000*40%				$      72,000
Requirement 3 :
Particulars	Basketball		Volleyball
Direct material	$         220,660		$         223,290
Direct Labour	$         110,600		$         110,250
Set up Cost	$           31,500		$           84,000
Equipment Operation & Maintenance	$           50,400		$           46,200
Rent	$           39,240		$           68,760
Total Cost	$        452,400		$        532,500
No.of units	58000		75000
	$              7.80		$              7.10
Requirement 4 :
Excess Capacity will be beneficial for Zarson as it can utilise the floor space which is idle and not used for any purposes, thereby, improving the contribution and net profits.
Zarson should consider set up and maintenance cost as these cost can increase on a capacity expansion leading to disproportionate incrasein cost without commmensurate increase in revenues.