The FSOJ Company undertakes the following activities in its production operation and incurred the following costs during the first half of 2010: Processing the juice into 3 final products involves the use of 2 machines, each of which incurred depreciation costs of $15,000 for the first half of 2010. Each product requires a different set up on the processing machines, so FSOJ normally sets up the machines to produce concentrate for the first week of each month. The machine is then set up to produce orange juice for the next 2 weeks. Finally, workers set up the same machines to produce orange icey-poles during the last week of each month. During the first half of 2010, 20% of the oranges harvested were turned into orange juice concentrate, 50% were processed into orange juice, and 30% became orange icey-poles. The relative sales values of each product were: 75% for orange juice, 20% for orange juice concentrate, and 5% for icey-poles. The orange juice concentrate operation takes up 40% of FSOJ's total factory space. Regular orange juice and orange icey-poles occupy 35% and 25%, respectively.
Which of the preceding costs would most likely have "number of setups" as its cost driver?
A) Harvest oranges
B) Package completed products
C) Process juice
D) Extract juice

Question

The FSOJ Company undertakes the following activities in its production operation and incurred the following costs during the first half of 2010:  Processing the juice into 3 final products involves the use of 2 machines, each of which incurred depreciation costs of $15,000 for the first half of 2010. Each product requires a different set up on the processing machines, so FSOJ normally sets up the machines to produce concentrate for the first week of each month. The machine is then set up to produce orange juice for the next 2 weeks. Finally, workers set up the same machines to produce orange icey-poles during the last week of each month. During the first half of 2010, 20% of the oranges harvested were turned into orange juice concentrate, 50% were processed into orange juice, and 30% became orange icey-poles. The relative sales values of each product were: 75% for orange juice, 20% for orange juice concentrate, and 5% for icey-poles. The orange juice concentrate operation takes up 40% of FSOJ's total factory space. Regular orange juice and orange icey-poles occupy 35% and 25%, respectively.
Which of the preceding costs would most likely have "number of setups" as its cost driver?
A) Harvest oranges 
B) Package completed products 
C) Process juice 
D) Extract juice

Quizplus · Accepted Answer

The cost of setting up the machines to produce each product is likely to have "number of setups" as its cost driver. This is because each product requires a different setup on the processing machines and FSOJ sets up the machines to produce concentrate for the first week of each month, orange juice for the next 2 weeks, and orange icey-poles during the last week of each month. Therefore, the number of times the machines are set up is likely to drive the cost of processing the juice into the final products.

The FSOJ Company Undertakes the Following Activities in Its Production