Bluewater Adventures manufactures two models of kayaks- Regular & Premium, using a combination of machining and hand finishing. 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 Bluewater is using only 80% of this capacity. Bluewater records the cost of unused capacity as a separate line item and not as a product cost. For 2021, Bluewater has budgeted the following:

Bluewater Adventures- Budgeted Costs & Activities (Year Ending 31^stMarch 2021)

Particulars

Amount (in Rs.)

Direct Materials- Regular Kayaks

3,250,000

Direct Materials- Premium Kayaks

2,400,000

Direct Labour- Regular Kayaks

1,100,000

Direct Labour- Premium Kayaks

1,300,000

Indirect Labour Costs

720,000

Machine Setup Costs

405,000

Equipment and Maintenance Costs

2,350,000

Facility Rent

2,000,000

Total

13,525,000

Other budget information is given below:

Particulars

Regular

Premium

Number of Kayaks

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 Bluewater? What are some of the issues Bluewater should consider before increasing production to use the space?