Scott, Inc

Scott, Inc. plans to manufacture scooters for commuters. The company expects to have two models, the "C" and the "R" models. The company will use activity-based costing to apply its estimated $145,000 of overhead costs to its products. Information about its overhead follows:

R Model

Assembly (Labour Hours)

$20,000

10,000

6,000

4,000

Quality control (Inspection Hours)

35,000

2,000

600

1,400

Parts Admin (Number of Parts)

90,000

100

40

60

$145,000

The following cost data is known:

          C Model

     R Model

Direct Materials

$600

$900

Direct Labour

250

400

Number of units produced

250 units

150 units

The company has not yet determined its planned selling price, but knows that the average price for competitors of the C Model is $1,200. For the R Model, competitors are priced at $1,700 on average. 

Required:

a.)   Compute the activity rates for each activity.

b.)   Determine the expected unit cost of each product.

c.)   If Scott, Inc. prices its products in line with competitors, what will the margins be on each product? The largest competitors have gross profit margins of 23%, how does Scott, Inc. compare?