Soneva Enterprise manufactures two models of boats- Regular & Deluxe, using a combination of hand finishing and machining. Machine setup costs are driven by the number of setups. Indirect labor cost increase with direct labor costs. Equipment and maintenance costs increase with the number of machine hours, and facility rent is paid per square foot. The capacity of the facility is 6250 square foot and Soneva is using only 80% of this capacity. Soneva records the cost of unused capacity as a separate line item and not as a product cost. For 2021, Soneva has budgeted the following: Soneva Adventures- Budgeted Costs & Activities (Year Ending 31st March 2021) Particulars Amount (in Rs.) Direct Materials- Regular Boats 3,250,000 Direct Materials- Deluxe Boats 2,400,000 Direct Labour- Regular Boats 1,100,000 Direct Labour- Deluxe Boats 1,300,000 Indirect Labour Costs 720,000 Machine Setup Costs 405,000 Equipment and Maintenance Costs 2,350,000 Facility Rent (for 6250sq foot capacity) 2,000,000 Total 13,525,000 Particulars Regular Deluxe Number of Boats 5000 3000 Machine Hours 11000 12500 Number of Setups 300 200 Square footage of production space used 2860 2140 Required: Based on the above information answer the following. State your assumptions (if any) clearly before attempting the question. a)Identify the various cost drivers rate for each activity cost pool. b)What is the budgeted cost for the unused capacity? c)Calculate the budgeted total cost and the cost per unit for each model. d)Why might excess capacity be beneficial for Soneva? What are some of the issues Soneva should consider before increasing production to use the space?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 12EB: Power Corp. makes 2 products: blades for table saws and blades for handsaws. Each product passes...

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Soneva Enterprise manufactures two models of boats- Regular & Deluxe, using a combination of hand finishing and machining. Machine setup costs are driven by the number of setups. Indirect labor cost increase with direct labor costs. Equipment and maintenance costs increase with the number of machine hours, and facility rent is paid per square foot. The capacity of the facility is 6250 square foot and Soneva is using only 80% of this capacity. Soneva records the cost of unused capacity as a separate line item and not as a product cost. For 2021, Soneva has budgeted the following:

Soneva Adventures- Budgeted Costs & Activities (Year Ending 31^st March 2021)

Particulars	Amount (in Rs.)
Direct Materials- Regular Boats	3,250,000
Direct Materials- Deluxe Boats	2,400,000
Direct Labour- Regular Boats	1,100,000
Direct Labour- Deluxe Boats	1,300,000
Indirect Labour Costs	720,000
Machine Setup Costs	405,000
Equipment and Maintenance Costs	2,350,000
Facility Rent (for 6250sq foot capacity)	2,000,000
Total	13,525,000

Particulars	Regular	Deluxe
Number of Boats	5000	3000
Machine Hours	11000	12500
Number of Setups	300	200
Square footage of production space used	2860	2140

Required: Based on the above information answer the following. State your assumptions (if any) clearly before attempting the question.

a)Identify the various cost drivers rate for each activity cost pool.
b)What is the budgeted cost for the unused capacity?
c)Calculate the budgeted total cost and the cost per unit for each model.
d)Why might excess capacity be beneficial for Soneva? What are some of the issues Soneva should consider before increasing production to use the space?

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