Stone Company Stone Company produces 50,000 units of Product Q and 6,000 units of Product Z during a period.In that period,four set-ups were required for color changes.All units of Product Q are black,which is the color in the process at the beginning of the period.A set-up was made for 1,000 blue units of Product Z; a set-up was made for 4,500 red units of Product Z; a set-up was made for 500 green units of Product Z.A set-up was then made to return the process to its standard black coloration and the units of Product Q were run.Each set-up costs $500.
Refer to Stone Company.Assume that Stone Company has decided to allocate overhead costs using levels of cost drivers.What would be the approximate per-unit set-up cost for the blue units of Product Z?
A)$.04.
B)$.25.
C)$.50.
D)None of the responses are correct.

Question

Quizplus · Accepted Answer

The total cost of all set-ups is $2,000 (4 set-ups x $500 each). The blue set-up is 1/6 of the total set-ups (1 out of 6), so it should be allocated 1/6 of the total set-up cost or $333.33. Since 1,000 blue units were produced, the approximate per-unit set-up cost would be $0.3333, which is rounded up to $0.50 or choice letter C.

Stone Company Stone Company Produces 50,000 Units of Product Q