Question

Horten 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 Horten made 70,000 tennis racquets and 30,000 badminton racquets).
Direct Cost Tennis Racquet (TR) Badminton Racquet (BR)
Direct materials $ 28 per unit $ 20 per unit
Direct labor 34 per unit 28 per unit


Category Estimated Cost Cost Driver Amount of Cost Driver
Unit level $ 750,000 Number of inspection hours TR: 15,000 hours; BR: 10,000 hours
Batch level 250,000 Number of setups TR: 80 setups; BR: 45 setups
Product level 150,000 Number of TV commercials TR: 4; BR: 1
Facility level 650,000 Number of machine hours TR: 30,000 hours; BR: 35,000 hours
Total $ 1,800,000

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

Compute the cost per unit for each product.

If management wants to price badminton racquets 30 percent above cost, what price should the company set?

Answer 1

Answer:

Tennis racquet cost is $76.71   per unit

Badminton racquet cost is $73.67    per unit

Price of badminton racquet  at 30% mark-up is  $95.77  

Explanation:

I calculated the cost of each racquet  as well as their prices in the attached excel file.

I started I added all prime costs(direct materials plus direct labor costs) to overhead costs.

After  having arrived at total manufacturing costs, I divided them by volume of each product to arrive at cost per unit.

I then marked up the cost by 30% to determine market price per unit.

Download xlsx