Chapter 5, Problem 5.40P

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 setups. 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:

Zarson’s Netballs Budgeted Costs and Activities For the Year Ended December 31, 2017
Direct materials—basketballs	$ 168,100
Direct materials—Volleyballs	303,280
Direct manufacturing labor—basketballs	111,800
Direct manufacturing labor—Volleyballs	100,820
Setup	157,500
Equipment and maintenance costs	115,200
Lease rent	120,000
Total	$1,166,700

Other budget information follows:

	Basketballs	Volleyballs
Number of balls	58,000	85,000
Machine-hours	13,500	10,500
Number of setups	450	300
Square footage of production space used	3,200	8,000

1. 1. Calculate the budgeted cost per unit of cost driver for each indirect cost pool.

Required

1. 2. What is the budgeted cost of unused capacity?
2. 3. What is the budgeted total cost and the cost per unit of resources used to produce (a) basketballs and (b) Volleyballs?
3. 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?