Question

A firm produces and sells two products, Mica and Plax. The following information is available relating to setup costs (a part of factory overhead): Plus MaxUnits produced 380 18,500Batch size (units) 20 500Number of setups 19 37Direct labor hours per unit 8 8Total direct labor hours 3,040 148,000Cost per setup: $2,250Total setup cost: $126,000Using number of setups as the activity base, the amount of setup cost allocated to each unit of product for Plus and Max, respectively is:a. $14.06: $31b. $31.30; $90.00c. $56.00 $56.00d. $112.50; $4.50e. $380.00: $18,500.00

Answer 1

The amount of set-up cost allocated to each product:

Plus = $2,250 x 19 set-ups

380 units

= $112.50 per unit

Max = $2,250 x 37 set-ups

18,500 units

= $4.50 per unit

The correct answer is D

Step-by-step explanation:

In order to obtain the amount of set-up allocated to each unit of Plus and Max, there is need to multiply the set-up cost per unit by the number of set-up for each product divided by number of each unit produced.