Author Question: Unused capacity, activity-based costing, activity-based management. Zarson's Netballs is a ... (Read 109 times)

OSWALD · **on:** Jul 6, 2018

Unused capacity, activity-based costing, activity-based management.

Zarson's Netballs is a manufacturer of high-quality basketballs and volleyballs. Setup costs are driven by the number of batches. Equipment and maintenance costs increase with the number of machine-hours, and lease rent is paid per square foot. Capacity of the facility is 14,000 square feet, and Zarson is using only 80 of this capacity. Zarson records the cost of unused capacity as a separate line item and not as a product cost. The following is the budgeted information for Zarson:

Other budget information follows:

Required:
1. Calculate the budgeted cost per unit of cost driver for each indirect cost pool.
2. What is the budgeted cost of unused capacity?
3. What is the budgeted total cost and the cost per unit of resources used to produce (a) basketballs and (b) volleyballs?
4. Why might excess capacity be beneficial for Zarson? What are some of the issues Zarson should consider before increasing production to use the space?

Question 2

Which of the following is correct concerning a T account?
a. The left side is the decrease side for assets.
b. The right side is the decrease side for liabilities.
c. The right side is the increase side for revenue.
d. The left side is the decrease side for expenses.

reversalruiz · **Reply #1 on:** Jul 6, 2018

Answer to Question 1

1.
Basketballs Volleyballs Total
Number of batches 450 300 750
Machine-hours 13,500 10,500 24,000

Setup cost per batch = 157,500 750 batches = 210 per batch.

Lease rent, insurance, utilities = 210,000 14,000 sq. ft. of capacity = 15 per sq. ft.

Cost of unused capacity = 15 per sq. ft 2,800 sq. ft. = 42,000
3.
Basketballs Volleyballs Total
Direct materials 168,100 303,280 471,380
Direct manufacturing labor 111,800 100,820 212,620
Setup
(210 450; 300) 94,500 63,000 157,500
Equipment and maintenance
(4.80 13,500; 10,500) 64,800 50,400 115,200
Lease rent, etc.
(15 3,200; 8,000) 48,000 120,000 168,000
Budgeted total costs 487,200 637,500 1,124,700
Divided by number of units 58,000 85,000
Budgeted cost per unit 8.40 7.50

4. Currently, Zarson's only utilizes 80 of its available capacity. Managers should consider whether the excess capacity is sufficient to produce footballs. Other issues to consider include demand for the proposed product, the competition, capital investment needed to start and support this product line, and the availability of skilled and unskilled labor needed to manufacture footballs.

Answer to Question 2

C