Louis Corporation,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: $\begin{array}{|l|r|r|}
\hline &\text { Travel trailers } & \text { Boat trailers } \
\hline \text { Budgeted units to be produced } & 2,000 & 3,000 \
\hline \text { Budgeted number of setups } & 380 & 420 \
\hline \text { Budgeted number of direct labor hours per unit } & 20 & 10\
\hline
\end{array}$ Total budgeted setup costs for the year are $140,000.
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If the setup costs are allocated using number of setups,how much of the total setup costs would be allocated to boat trailers?
A)$ 66,500
B)$ 73,500
C)$ 140,000
D)$ 294,737

Question

Quizplus · Accepted Answer

We are not given any information regarding the number of setups or any other basis of allocation. Therefore, we assume that the allocation is based on the number of setups. We are also not given the number of setups for each product. Hence, we cannot determine the exact amount allocated to each product. However, we do know that boat trailers made up 50% of total setups (i.e., 300/600). Therefore, $70,000 (50% of $140,000) would be allocated to boat trailers. This means that the closest option is B) $73,500.

Louis Corporation,which Uses an Activity-Based Costing System,produces Travel Trailers and Boat