A firm produces and sells two products, Plus and Max. The following information

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):

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:

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

Explanation / Answer

total setup cost/total direct labour hours

=64800/81000=0.8

For plus:

setup cost=0.8*5=$4

For MAx:

=0.8*5=$4

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