problem5-18a pricing decisions made with abc system cost data

Project Description:

morello 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 quiet different. the company has recently converted its cost accounting system to activity-based costing. the following are the cost data that june searight, the cost, accountant, prepared for the third quarter of 2011 (during which morello made 70,000 tennis racquets and 30,000 badminton racquets).

direct cost tennis racquet (tr) badminton racquet (br)
direct materials $18 per unit $14 per unit
direct labor 32 per unit 26 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

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 commercials fees are paid at the beginning of the quarter. facility-level cost includes depreciation of all production equipment.
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