Question

Pasternik Company produces and sells two products, Alpha and Zeta. The following information is available relating to its setup activities: Alpha Zeta Units produced 250 20,000 Batch size (units) 10 500 Total direct labor hours 1,000 39,000 Cost per setup $ 2,000 $ 2,000 Assume the cost per setup remains at $2,000 but that the batch size for product Alpha is changed from 10 to 25 units per batch. Using activity-based and a volume-based overhead costing that uses direct labor-hours to assign overhead, the amount of setup cost applied to each unit of product Alpha would be: (Rounded to the nearest cent.) Activity Based Costing Volume Based Costing A) $ 400.00 $ 9.00 B) $ 500.00 $ 8.00 C) $ 80.00 $ 10.00 D) $ 2.25 $ 4.50 E) None of these answer choices is correct.

Answer 1

Answer:

E) None of these answer choices is correct.

Explanation:

Overhead bases on labor hours:

250 units / 25 per batch:  10 batch

total overhead cost: $ 2,000 setup per batch x 10 batch= $ 20,000

20,000 overhead cost / 1,000 labor hours = 20 dollars per hour

1,000 labor hours / 250 units of output: 4 labor hours per unit

4 labor hours x $ 20 = $ 80

Overhead based on activity:

Setup cost: 2,000

units per batch: 25

$ 2,000 / 25 units = $ 80