Whitewater Adventures manufactures two models of kayaks, Basic and Deluxe, using a combination of machining and hand finishing. Machine setup costs are driven by the number of setups. Indirect manufacturing labor costs increase with direct manufacturing labor costs. Equipment and maintenance costs increase with the number of machine-hours, and facility rent is paid per square foot. Capacity of the facility is 6,250 square feet and Whitewater is using only 80% of this capacity. Whitewater records the cost of unused capacity as a separate line item, and not as a product cost. For the current year, Whitewater has budgeted the following.

Whitewater Adventures Budgeted Costs and Activities for the Year Ended December 31, 2013

Direct materials-Basic kayaks ............................................... $ 325,000

Direct materials-Deluxe kayaks ............................................... 240,000

Direct manufacturing labor-Basic kayaks .................................... 110,000

Direct manufacturing labor-Deluxe kayaks ................................. 130,000

Indirect manufacturing labor costs ............................................... 72,000

Machine setup costs ................................................................ 40,500

Equipment and maintenance costs ............................................... 235,000

Facility rent .......................................................................... 200,000

Total .............................................................................. $1,352,500

Other budget information follows.

Required
1. Calculate the cost per unit of each cost-allocation base.
2. What is the budgeted cost of unused capacity?
3. Calculate the budgeted total cost and the cost per unit for each model.
4. Why might excess capacity be beneficial for Whitewater? What are some of the issues Whitewater should consider before increasing production to use the space?

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Basic Deluxe Number of kayaks Machine-hours Number of batches Square footage of production space used 3,000 12,500 5,000 11,000 300 2,860 200 2,140