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Blowing Safety Co. P/L manufactures safety parachutes for the airline industry. These are sold directly to the airline companies. Management expects to manufacture and sell around 90,000 parachutes for 2010; the selling price for each parachute to be $425.00 each. The direct material cost per parachute is $145.00.
The company estimates, based on historical data that there will be around 1150 orders for the year from their 95 customers and will involve producing 240 batches of parachutes.
The company introduced Activity-based costing in 2008 and the following activities and costs have been identified.
ACTIVITY
LEVEL OF ACTIVITY
ESTIMATED COSTS
Production-related costs
Production design
Product
$35,000
Batch
$110.00 per batch
Moving materials to cutting area
$85.00 per batch
Cutting machines set-up
$140.00 per batch
Moving materials to sewing area
$90.00 per batch
Sewing machines set-up
Cutting pattern
Unit
$25.00 per unit
Stitching
$60.00 per unit
Waterproofing
$45.00 per unit
Inspection
$18.00 per unit
Packaging
$9.00 per unit
Sales-related costs
Processing customer order
Order
$55.00 per order
Distribution
$275.00 per order
Sales calls
Customer
$460.00 per order
Handling customer complaints
$115.00 per order
Advertising
Market
$40,000
Other Operational costs
Administration
Company
$295,000
Assignment requirements.
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