Archer Pro manufactures two models of sport bows, Basic and Deluxe, using a combination of machining and hand finishing. Machine setup costs are driven by the number of setups. Indirect manufacturing labor costs increase with direct manufacturing labor costs. Equipment and maintenance costs increase with the number of machine-hours, and facility rent is paid per square foot. Capacity of the facility is 10,000 square feet, and Archer Pro is using only 75% of this capacity. Archer Pro records the cost of unused capacity as a separate line item and not as a product cost. For the current year, Archer Pro has budgeted the following:

Archer Pro Budgeted

Costs and Activities for the

Year Ended December 31, 2017

Direct materials-Basic bows...................................$450,000

Direct materials-Deluxe bows ...............................320,000

Direct manufacturing labor-Basic bows.....................155,000

Direct manufacturing labor-Deluxe bows ..................195,000

Indirect manufacturing labor costs ...........................105,000

Machine setup costs ............................................ 60,000

Equipment and maintenance costs ...........................264,000

Facility rent ......................................................250,000

Total .............................................................. $1799,000

Other budget information follows:

____________________________________Basic _____________Deluxe

Number of bows ..............................10,000 .............. 5,000

Machine-hours ................................15,000 ..............18,000

Number of setups ............................ 500 ............. 300

Square footage of production space used..... 4,000 ..............3,500

Required

1. Calculate the cost per unit of each cost-allocation base.

2. What is the budgeted cost of unused capacity?

3. Calculate the budgeted total cost and the cost per unit for each model.

4. Why might excess capacity be beneficial for Archer Pro? What are some of the issues Archer Pro should consider before increasing production to use the space?