Sam has talked through with his production supervisor, Anna, all the activities undertaken to make a tennis racquet. They have estimated costs by each activity and discussed what will drive these costs. The solution for writing a specification has been given as an example.

Required:

a) Calculate the cost per driver for each activity in Table 11.9.

Anna has given Sam and Kim information about making standard and customized tennis racquets, as shown in Table 11.10.

b) Apply these rates to calculate the total manufacturing overhead for standard and customized tennis racquets in a year, using the information in Tables 11.9 and 11.10, laid out as Table 11.11.

c) Using the product information in Table 11.12, estimate the cost of a standard and a customized racquet.

d) Sam estimates that he could sell these racquets for £30. Would Sam market the customized racquets based on the standard manufacturing cost? Will he make a different decision now that he has activity-based costing information?

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Table 11.9 Activities, cost pools, and cost drivers for tennis racquets Cost per Activity Cost pool per annum Cost driver driver Writing a specification 1,000 20 specifications for each type of racquet 50 per specification Placing a purchase 3,000 500 purchase orders order for materials Frame machine set-up 2,000 30 set-ups Frame manufacture 18,624 1,687 machine hours Racquet-stringing 11,800 3,750 labour hours Delivery cost 5,000 270 deliveries