Cartwright Ltd manufactures two models of saddles the Jordan and
Cartwright Ltd. manufactures two models of saddles, the Jordan and the Shenandoah. The Jordan is a more basic model and sells for $750. The Shenandoah is a professional-model saddle and sells for $1,600. At the beginning of the year, the following budgeted data were available:
The following are the budgeted indirect costs for the year:
Equipment maintenance ...........$140,000
Utilities .................. 48,000
Purchasing materials ............. 50,000
Indirect materials .............. 60,000
Receiving goods ............. 35,000
Factory rental .............. 96,000
Setting up equipment ........... 13,800
Inspection costs ............. 148,000
Design .................. 50,000
Production support ............. 75,000
Facility-level costs are allocated on the basis of machine hours.
REQUIRED
1. Calculate the cost per unit for each product assuming the company uses a single overhead allocation rate based on direct labour-hours.
2. Form homogeneous cost pools and select appropriate cost drivers. Explain the rationale behind each of your groupings. Calculate the activity rates.
3. Using the activity rates calculated in requirement 2, calculate the per-unit cost for each product.
4. Compare your results from requirements 1 and 3, and comment on your results.
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