Question 3 of 3 -/4 : Chad Davis, C&C Sports' vice president for operations, recently received a sales brochure for a new electric cutting tool. Based on the tool's specifications, Chad believes that C&C Sports could increase the batch size on jersey production to 50 jerseys, up from the current 35 jerseys. While the cutting tool would be used on pants and award jackets as well, other production factors prevent increasing the batch sizes for these products. The new tool would increase annual operating costs by $19,698. Before deciding whether to purchase the cutting tool, Chad wants to know how the new tool will affect the cost of producing the company's three products. Budgeted production Units per Batch Cut per Batch Pants 183,500 50 4 Jerseys 66,500 50 5 Jackets 18,000 5 9 B C H Chenille Machine Costs Traceable to Product 1 Jackets Design 2 Indirect labor $ 12,495 $ Warehousing/ Packaging 69,000 $ 70,000 $ Cutting 27,000 $ Sewing 55,875 $ General 129,606 $ Total 363,976 3 Depreciation 4 Indirect materials 5 Rent 6 Utilities 7 Insurance 7,290 194,030 57,768 13,180 170,738 209,226 61,838 155,638 82,308 787,400 63,019 230,000 25,921 230,000 88,940 105,000 105,000 8 Other 9 Total $ 2,185 216,000 $ 17,028 143,796 $ 16,597 270,515 $ 12,726 248,952 $ 8,330 344,700 $ 9,010 499,537 $ 1,723,500 65,876 D E G H 1 Total Cost (A) Total Activity (B) Activity Rate (A)+(B) 2 Product Design $ 143,796 3 product lines $ 47,932 per product line 3 Warehousing/Packaging $270,515 9,170 batches $ 29.50 per batch 4 Cutting $ 248,952 56,580 cuts $ 4.40 per cut 5 Sewing $ 344,700 86,175 direct labor hours $ 4.00 per direct labor hour If the new equipment is purchased, the new rate for the cutting activity will be $5/cut. The total cutting overhead cost pool will be $268,650.