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Huntington Boards manufactures two models of surfboards, Basic and Competition, in a facility in Southern California. In fabrication, machine setup costs are driven by the

Huntington Boards manufactures two models of surfboards, Basic and Competition, in a facility in Southern California. In fabrication, machine setup costs are driven by the number of setups, machine maintenance and utility costs increase with the number of machine hours, and indirect labor costs increase with direct labor hours. Facility rent and machine depreciation are fixed, and are the basis of manufacturing capacity. Fixed costs are allocated equally to each unit produced, regardless of model. Currently Huntington uses 80% of its manufacturing capacity. The cost of unused capacity is not assigned to products, but is expensed as a separate line item. For 2020, Huntington has budgeted the following:

Huntington Boards

Budgeted Costs for the

Year Ended December 31, 2020

Direct materialsBasic boards

$260,000

Direct materialsCompetition boards

450,000

Direct manufacturing laborBasic boards

307,500

Direct manufacturing laborCompetition boards

512,500

Machine setup costs

90,000

Machine maintenance and utility costs

251,100

Indirect labor costs

330,000

Facility rent

254,000

Machine depreciation

63,500

Other information:

Basic

Competition

Units produced

5,200

7,500

Machine hours

31,200

52,500

Number of setups

400

800

Direct labor-hours

15,000

25,000

Requirement 1. Calculate the cost-allocation rate for each of the activity-cost pools for variable and fixed overhead costs. Select the formula you will use, then calculate the cost driver rate. (Round the cost driver rates to the nearest cent, $X.XX. "Machine maint & util" = "Machine maintenance and utility costs".)

=

Cost driver rate

2.

Calculate the cost of unused capacity for the year.

3.

Calculate the total cost for each model, and the cost per unit for each model.

4.

Huntington has the opportunity to sublease the unused factory space to a startup company that will be manufacturing surf apparel. None of

Huntington's machinery will be used. Is there a minimum annual rent that

Huntington should charge? Are there any other considerations that

Huntington's management should make prior to offering the space?

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