Carrol Company, which uses an activity-based costing system, produces travel trailers and boat trailers. The company allocates batch setup costs to the two products using the following basic data: Total budgeted setup costs for the year are $158,400.
If the setup costs are allocated using direct labor hours, how much of the total setup costs would be allocated to boat trailers?
A)$158,400
B)$104,400
C)$240,331
D)$306,240

Question

Carrol Company, which uses an activity-based costing system, produces travel trailers and boat trailers. The company allocates batch setup costs to the two products using the following basic data:  Total budgeted setup costs for the year are $158,400.
If the setup costs are allocated using direct labor hours, how much of the total setup costs would be allocated to boat trailers?
A)$158,400 
B)$104,400 
C)$240,331 
D)$306,240

Quizplus · Accepted Answer

Since the question asks about the allocation of setup costs using direct labor hours, we need to know the total number of direct labor hours for each product. The question does not provide this information, so we cannot calculate the exact amount allocated to boat trailers. However, we can use the information given to eliminate some answer choices.

We know that the total budgeted setup costs for the year are $158,400. If this entire amount were allocated to boat trailers, the answer would be A. However, this is unlikely to be the case, as Carrol Company produces two types of trailers.

Answer D is too high, as it implies that all setup costs are allocated to boat trailers and that the cost per direct labor hour is much higher than it would be if the costs were allocated equally between the two products.

Answer C is also too high, as it implies that boat trailers require more setup time than travel trailers, which is not necessarily the case.

Therefore, the best answer choice is B, as it implies that the costs are allocated based on the relative amount of direct labor hours required for each product. This makes sense, as setup time is likely to be influenced by the amount of labor required to produce each type of trailer.

Carrol Company, Which Uses an Activity-Based Costing System, Produces Travel