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 200 16,000
Batch size (units) 10 400
Number of setups 20 40
Direct labor hours per unit 5 5
Total direct labor hours 1,000 80,000
Cost per setup $1,080
Total setup cost $64,800
1. With traditional two-stage allocation of overhead costs, using direct labor hours as the allocation base, the setup cost portion of overhead that is allocated to each unit of product for Plus and Max, respectively is __________?

Answer 1

Answer:

$4 and $4

Explanation:

The computation are shown below:

Per hour cost = Total set up cost ÷ Total direct labor hours

                          = $64,800 ÷ $81,000

                          = $0.8

Now the set up cost would be

= Per hour cost × Direct labor hours per unit

For Plus

= 5 × $0.8

= $4

For Max

= 5 × $0.8

= $4

All other given information is not important. Hence, ignored it