A firm produces and sells two products, Mica and Plax. The following information is available relating to setup costs (a part of factory overhead): Using number of setups as the activity base, the amount of setup cost allocated to each unit of product for Mica and Plax, respectively is:
A) $21.60; $.54.
B) $54.00; $27.00.
C) $60.00; $60.00.
D) $108.00; $2.70.
E) $200.00; $16,000.00

Question

A firm produces and sells two products, Mica and Plax. The following information is available relating to setup costs (a part of factory overhead):  Using number of setups as the activity base, the amount of setup cost allocated to each unit of product for Mica and Plax, respectively is:
A) $21.60; $.54. 
B) $54.00; $27.00. 
C) $60.00; $60.00. 
D) $108.00; $2.70. 
E) $200.00; $16,000.00

Quizplus · Accepted Answer

To determine the amount of setup cost allocated to each unit of product, we need to divide the total setup cost for each product by the number of units produced for each product.

For Mica:

Total setup cost = $32,400
Number of setups = 300
Number of units produced = 20,000

Setup cost per unit = $32,400/300 = $108.00

For Plax:

Total setup cost = $16,200
Number of setups = 600
Number of units produced = 6,000

Setup cost per unit = $16,200/600 = $27.00

Therefore, the amount of setup cost allocated to each unit of product for Mica and Plax, respectively, is $108.00 and $27.00. The best choice is D.

A Firm Produces and Sells Two Products, Mica and Plax