Max Company manufactures two models of pens, a standard and a deluxe model.Three activities have been identified as cost drivers and the related overhead costs $70,000) pooled together to arrive at the following information: $\begin{array}{cccc}
& \begin{array}{c}
\text { Number } \
\text { of }
\end{array} & \begin{array}{c}
\text { Number } \
\text { of }
\end{array} & \begin{array}{c}
\text { Number } \
\text { of }
\end{array} \
\text { Product } & \text { Setups } & \text { Components } & \text { DLH }\\hline
\text { Standard } & 20 & 15 & 375 \
\text { Deluxe } & 30 & 45 & 225 \
& & & \
\text { Costs per pool } & \$ 50,000 & \$ 9,000 & \$ 36,000
\end{array}$ If activity?based costing is used, _____ is the overhead rate per setup.
A)$1,000
B)$150
C)$60
D)$117

Question

Max Company manufactures two models of pens, a standard and a deluxe model.Three activities have been identified as cost drivers and the related overhead costs $70,000) pooled together to arrive at the following information: $\begin{array}{cccc} 
& \begin{array}{c}
\text { Number } \
\text { of }
\end{array} & \begin{array}{c}
\text { Number } \
\text { of }
\end{array} & \begin{array}{c}
\text { Number } \
\text { of }
\end{array} \
\text { Product } & \text { Setups } & \text { Components } & \text { DLH }\\hline
\text { Standard } & 20 & 15 & 375 \
\text { Deluxe } & 30 & 45 & 225 \
& & & \
\text { Costs per pool } & \$ 50,000 & \$ 9,000 & \$ 36,000
\end{array}$ If activity?based costing is used, _____ is the overhead rate per setup.
A)$1,000
B)$150
C)$60
D)$117

Quizplus · Accepted Answer

The overhead rate per setup is calculated by dividing the total costs allocated to the setup cost pool ($50,000) by the total number of setups (20 setups for Standard + 30 setups for Deluxe = 50 setups). Thus, $50,000 / 50 setups = $1,000 per setup.

Max Company Manufactures Two Models of Pens, a Standard and a Deluxe