Hayya Football Company

Hayya is a football accessories manufacturer, headquartered in Lusail, Doha. The company manufactures football related products and accessories. The company uses a traditional costing system to account for the manufacturing costs of the companys main products. The company allocates total manufacturing overhead of $6,000,000 to four products using a manufacturing overhead rate based on total direct labor cost. That is, the manufacturing overhead cost for each product is determined by multiplying the direct labor cost of each product by the manufacturing overhead rate.

Part 1: The manufacturing cost of the traditional football

The president of the company Mr. Khalid Yaseen has been showing concerns lately with respect to the profitability of the main product (traditional football) because of the increase in its Manufacturing overhead related costs which is over than 150 QR per unit. The president thinks that pricing the traditional football above its full cost of 265 would lead to a drop in the market share as competitors with similar specifications are priced aroud 250QR. The president has hired you as a new financial controller, who holds a Certified Management Accountant (CMA) certificate to assess the profitability of each product before eliminating the traditional football product.

On the first week you requested the Management and Cost Accounting Department to provide you with additional data related to the four products. Additional data summarizes the direct costs, cost drivers of the overhead categories and the number of units produced:

	Goalkeeper Gloves	Goal Nets	Training supplies	Traditional Football
Units Produced	1,200	1,300	1,300	20,000
Direct Material Cost	500,000$	500,000$	900,000$	1,550,000$
Direct Labor Cost	$200,000	$300,000	250,000$	$750,000
Overhead Categories
Purchase orders written	180	40	130	50
No. of production run setups	200	407	445	355
Material movements	980	460	926	420
Machine hours	10,500	3,500	28,000	28,000
Design hours	990	345	980	805
Inspection hours	1,520	990	1,540	1,450

On the first week of your work, the management and cost accounting department provided you with the following table summarizing manufacturing overhead categories and their associated costs:

Purchasing	$ 2,062,000
Machine Setups for productions runs	$ 703,500
Material Movements	$ 696,500
Machinery	$ 658,000
Design	$ 780,000
Inspection	$ 1,100,000
Total	$ 6,000,000

Required:

Prepare a report to Mr. Khalid that shows the calculations of the cost per unit for each product under the traditional costing system (10%)

Prepare a report to Mr. Khalid that shows the calculations of the cost per unit for each product under and the suggested costing system (ABC). (30%)