Question

Multiple Choice Question Valpar Company produces several lines of laundry hampers. The factory is highly automated and uses an activity-based costing system to allocate overhead costs to its various products. During the upcoming period the company expects to produce 72,000 units. The costs and cost drivers associated with four activity cost pools are given below: Activities Unit Level Batch Level Product Level Facility Level Cost $20,000 $10,000 $15,000 $36,000 Cost Driver 4,000 labor hours 400 set-ups % of use 72,000 units Production of 20,000 units of its popular foldable hamper required 2,000 labor hours, 20 setups, and consumed one-quarter of the product sustaining activities. What amount of batch-level costs will be allocated to the product

Answer 1

To determine the batch-level costs allocated to the product, calculate the cost allocated per setup and multiply it by the number of setups required for the production of 72,000 units.

Step-by-step explanation:

To determine the batch-level costs allocated to the product, we need to calculate the cost allocated per unit for each activity cost pool and then multiply it by the number of units produced.

For the batch-level cost pool, the cost driver is the number of setups. Given that 20 setups were required to produce 20,000 units, the cost allocated per setup is $10,000/20 setups = $500 per setup.

The number of setups for 72,000 units can be calculated as: (72,000 units / 20,000 units) * 20 setups = 72 setups.

Hence, the batch-level costs allocated to the product will be: 72 setups * $500 per setup = $36,000.

Answer 2

$500

Step-by-step explanation:

Calculation to determine the amount of batch-level costs that will be allocated to the product

Using this formula

Allocation rate=(Total batch level overhead cost/Total activity base ) * Set-ups

Let plug in the formula

Allocation rate=( $10,000/400 set-ups) *20 set-ups

Allocation rate=$25 per set-up *20 set-ups

Allocation rate=$500

Therefore the amount of batch-level costs that will be allocated to the product is $500