Problem Set 5 (Last Seminar) PDF

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COST ACCOUNTING - 101 - PROBLEM SET 5 2. Unused capacity, activity-based costing, activity-based management. Nivag’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 12,000 square feet and Nivag is using only 70% of this capacity. Nivag records the cost of unused capacity as a separate line item, and not as a product cost. The following is the budgeted information for Nivag: Nivag’s Netballs Budgeted Costs and Activities For the Year Ended August 31, 2012 Direct Material –Basketball $ 209,750 Direct Material – Volleyball 358,290 Direct Manufacturing Labor – Basketball 107,333 Direct manufacturing Labor – Volleyball 102,969 Setup 143,500 Equipment and Maintenance costs 109,900 Lease Rent 216,000 Total 1,247,742 Other budget information follows:

Basketball

Volleyballs

Number of balls

66,000

100,000

Machine hours

11,000

12,500

Number of batches

300

400

3,360

5,040

Square footage of production space used

Required:

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

CONCEPT

BASKET

VOLLEY

Basket/Unit

Volley/Unit

Set up

(300/700)*14 3500= 61500€

82.000€

(61500€/300u) = 205€/u

(82000€/400u)= 205€/u

Equipment and Management

51442,55€

58457,45€ (5144,55€/110 00)=4,68€/u

(58457,45€/125 00)=4,68€/u

Lease Rent

86400€

129600€

(129600€/5040) = 25,71€/u

(86400€/3360) = 25,71€/u

2. What is the budgeted cost of unused capacity? Unused capacity * Square feet = 30% * 12000 = 3600 square feet unused Square feet taken into account in “Lease Rent”, thus: 3600f.u. * 25,71€/u = 92556€

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

UNIT COSTS

BASKET

VOLLEY

Direct Costs

209750/66000 = 3,18€

3,58€

Direct Manuf. Labor

1,63€

1,03€

Indirect Costs

3,02€

2,70€

TOTAL (per unit)

7,82€

7,31

TOTAL (all units)

516425,55€

731316,45€

4. What factors should Nivag consider if it has the opportunity to manufacture a new line of footballs? The reduction of overhead costs as well as the better allocation of resources such as the unused surface capacity....