Miramar Industries manufactures two products: A and B. The manufacturing operati

Question

Miramar Industries manufactures two products: A and B. The manufacturing operation involves three overhead activities—production setup, material handling, and general factory activities. Miramar uses activity-based costing to allocate overhead to products. An activity analysis of the overhead revealed the following estimated costs and activity bases for these activities:

Each product's total activity in each of the three areas are as follows:

a.$625 per setup

b.$833 per setup

c.$2,500 per setup

d.$400 per setup

Activity Cost Activity Base Production setup $250,000 Number of setups Material handling 150,000 Number of parts General overhead 80,000 Number of direct labor hours

Explanation / Answer

production setup / number of setups

250000 / (100+300) = 625

answer is

a.$625 per setup

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