Question

a firm produces and sells two products, plus and max. the following information is available relating to setup costs (a part of factory overhead): plus max units produced 260 16,800 batch size (units) 10 420 number of setups 26 40 direct labor hours per unit 4 4 total direct labor hours 1,040 67,200 cost per setup $ 1,260 total setup cost $ 83,160 using number of setups as the activity base, the amount of setup cost allocated to each unit of product for plus and max, respectively is:

Answer 1

To determine the amount of setup cost allocated to each unit of product for Plus and Max, we need to use the number of setups as the activity base.

First, we need to calculate the cost per setup for each product:

Cost per setup for Plus = Total setup cost ÷ Number of setups for Plus = $83,160 ÷ 26 = $3,196

Cost per setup for Max = Total setup cost ÷ Number of setups for Max = $83,160 ÷ 40 = $2,079

Next, we can use the cost per setup and the number of units produced to calculate the setup cost per unit for each product:

Setup cost per unit for Plus = Cost per setup ÷ Batch size = $3,196 ÷ 10 = $319.60

Setup cost per unit for Max = Cost per setup ÷ Batch size = $2,079 ÷ 420 = $4.93

Therefore, the amount of setup cost allocated to each unit of product for Plus and Max is $319.60 and $4.93, respectively.