Question

Rooney 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 Rooney made 69,000 tennis racquets and 29,000 badminton racquets).

Direct Cost	Tennis Racquet (TR)				Badminton Racquet (BR)
Direct materials	$	15.60	per unit		$	14.00	per unit
Direct labor		34.50	per unit			24.90	per unit

Category	Estimated Cost					Cost Driver	Amount of Cost Driver
Unit level		$	783,000			Number of inspection hours	TR: 14,800 hours; BR: 12,200 hours
Batch level			264,600			Number of setups	TR: 84 setups; BR: 42 setups
Product level			152,500			Number of TV commercials	TR: 3; BR: 2
Facility level			630,000			Number of machine hours	TR: 30,200 hours; BR: 39,800 hours
Total		$	1,830,100

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?

Compute the cost per unit for each product. (Round intermediate calculations and final answers to 2 decimal places.)

	Type of Product Cost per Unit Tennis Racquet Badminton Racquet

If management wants to price badminton racquets 30 percent above cost, what price should the company set? (Round intermediate calculations and final answer to 2 decimal places.)

	Price of badminton racquets

Answer 1

Solution 1:

Computation of Activity rates
Cost driver	Cost	Total activity level	Activity rate
Unit level	$7,83,000	27000	$29.00
Batch level	$2,64,600	126	$2,100.00
Product level	$1,52,500	5	$30,500.00
Facility level	$6,30,000	70000	$9.00
Total	$18,30,100
Computation of Overhead assigned to products
	Tennis Racquet			Badminton Racquet
Activity cost pool	Activity level used	Activity rate	Cost assigned	Activity level used	Activity rate	Cost assigned
Unit level	14800	29.00	$4,29,200.00	12200	29.00	$3,53,800.00
Batch level	84	2100.00	$1,76,400.00	42	2100.00	$88,200.00
Product level	3	30500.00	$91,500.00	2	30500.00	$61,000.00
Facility level	30200	9.00	$2,71,800.00	39800	9.00	$3,58,200.00
Total Overhead cost assigned			$9,68,900.00			$8,61,200.00
No. of units			69,000			29,000
Overhead per unit			$14.04			$29.70
Computation of Unit Product Cost
	Tennis	Badminton
Direct Materials	$15.60	$14.00
Direct labor	$34.50	$24.90
Overhead Costs	$14.04	$29.70
Cost per unit	$64.14	$68.60

Solution 2:

Price of badminton racquets = $68.60*130% = $89.18