Franklin Company uses activity-based costing,and normally produces 1,000,000 units per month.At this level of production,the costs per unit are as follows:
$\begin{array} { l }
\text {Direct materials used }&\$14 \
\text {Direct labor }&\$6 \
\text { Variable indirect production}&\$ 1\
\text {Setup costs }&\$3 \
\end{array}$

For 1,000,000 units,500 setups are required at a cost of $6,000 per setup.The company has received a special order for 100,000 units at $22 per unit.The company has excess capacity.The company estimates that 5 setups will be required for the special order.What is the cost of the special order?
A) $2,100,000
B) $2,130,000
C) $2,400,000
D) $2, 430,000

Question

Franklin Company uses activity-based costing,and normally produces 1,000,000 units per month.At this level of production,the costs per unit are as follows:
$\begin{array} { l  }
 \text {Direct materials used }&\$14 \
 \text {Direct labor }&\$6 \
 \text { Variable indirect production}&\$ 1\
 \text {Setup costs }&\$3 \
\end{array}$

For 1,000,000 units,500 setups are required at a cost of $6,000 per setup.The company has received a special order for 100,000 units at $22 per unit.The company has excess capacity.The company estimates that 5 setups will be required for the special order.What is the cost of the special order?
A) $2,100,000
B) $2,130,000
C) $2,400,000
D) $2, 430,000

Quizplus · Accepted Answer

The cost of the special order can be calculated by adding the costs of direct materials, direct labor, variable indirect production costs, and setup costs for 100,000 units. Direct materials ($14), direct labor ($6), and variable indirect production costs ($1) sum up to $21 per unit. For 100,000 units, this amounts to $2,100,000. Setup costs for 5 setups at $6,000 each total $30,000. Adding these together, $2,100,000 + $30,000 = $2,130,000.

Franklin Company Uses Activity-Based Costing,and Normally Produces 1,000,000 Units Per