Nivag’s Netballs Is A Manufacturer Of High Quality Basketballs And Volleyballs

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Unused capacity, activity-based costing, activity-based management. Nivag’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 12,000 square feet and Nivag is using only 70% of this capacity. Nivag records the cost of unused capacity as a separate line item, and not as a product cost. The following is the budgeted information for Nivag:

Nivag’s Netballs
Budgeted Costs and Activities
For the Year Ended August 31, 2012

Direct materials—basketballs

$ 209,750

Direct materials—volleyballs

358,290

Direct manufacturing labor—basketballs

107,333

Direct manufacturing labor—volleyballs

102,969

Setup

143,500

Equipment and maintenance costs

109,900

Lease rent

216,000

Total

$1,247,742

Other budget information follows:

 

Basketballs

Volleyballs

Number of balls

66,000

100,000

Machine-hours

11,000

12,500

Number of batches

300

400

Square footage of production space used

3,360

5,040

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. What factors should Nivag consider if it has the opportunity to manufacture a new line of footballs?

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