Question

17) Siri Co makes wicker and wooden picnic baskets. It requires approximately one hour of labor to make one basket of either type. Wicker baskets are produced in batches of 100 units and require 0.5 machine hours per basket. Wooden baskets are produced in batches of 50 units and require 0.75 machine hours per basket. Setup is required for each batch. During the most recent accounting period, the company made 8,000 wicker baskets and 2,000 wooden slat baskets. Setup costs amounted to $24,000 for the baskets produced during the period. If activity-based costing is used to allocate overhead costs to the two products, the amount of setup cost assigned to the wicker baskets will be: A. $19,200 B. $16,000 C. $17,455 D. $12,000

Answer 1

To assign setup costs to the wicker baskets using activity-based costing, we calculate the total setup hours for the wicker baskets and then divide the total setup cost by the total setup hours to determine the amount of setup cost assigned to the wicker baskets. The correct answer is A.

Step-by-step explanation:

To allocate the setup costs to the wicker baskets using activity-based costing, we need to determine the total number of setup hours for the wicker baskets. Since 100 wicker baskets are produced in a batch and each basket requires 0.5 machine hours, the total setup hours for the wicker baskets is obtained by multiplying the number of batches (8000/100) by the setup time per batch of wicker baskets (1 hour). This gives us a total of 80 setup hours for the wicker baskets.

To calculate the amount of setup cost assigned to the wicker baskets, we divide the total setup cost ($24,000) by the total setup hours (80) and multiply the result by the setup hours for the wicker baskets (80). This gives us $19,200 as the amount of setup cost assigned to the wicker baskets.

Therefore, the correct answer is A. $19,200.

Answer 2

Answer: B. $16,000

Step-by-step explanation:

Wicker baskets are made in 100 unit batches and a setup is required for each batch.

If 8,000 wicker baskets were made, the number of batches and setups was:

= 8,000 / 100

= 80 wicker basket setups

If 2,000 wooden slat baskets were made, the number of batches and setups was:

= 2,000 / 50

= 40 wooden slat basket setups

Cost allocated to wicker basket setup = Wicker basket setups / (Wicker basket setups + Wooden slat baskets setups) * Setup costs for the period

= 80 / (80 + 40) * 24,000

= $16,000