Reed Company
Reed Company produces 50,000 units of Product Q and 6,000 units of Product Z during a period.In that period,four set-ups were required for color changes.All units of Product Q are black,which is the color in the process at the beginning of the period.A set-up was made for 1,000 blue units of Product Z;a set-up was made for 4,500 red units of Product Z;a set-up was made for 500 green units of Product Z.A set-up was then made to return the process to its standard black coloration and the units of Product Q were run.Each set-up costs $500.
Refer to Reed Company.Assume that Reed Company has decided to allocate overhead costs using levels of cost drivers.What would be the approximate per-unit set-up cost for the blue units of Product Z?
A)$.04.
B)$.25.
C)$.50.
D)None of the responses are correct.

Question

Quizplus · Accepted Answer

To allocate overhead costs using levels of cost drivers, we need to identify the cost driver for the set-up activity. In this case, the cost driver is the number of set-ups required. As there were four set-ups required in total and each set-up cost $500, the total cost of set-ups is $2,000. 
To determine the per-unit set-up cost for the blue units of Product Z, we need to divide the cost of the set-up for blue units by the number of blue units produced. The set-up cost for blue units is $500, which is one-fourth of the total set-up cost. The number of blue units produced is 1,000. Therefore, the per-unit set-up cost for the blue units of Product Z is $0.50 or 50 cents. 
So, the correct answer is C.

Reed Company Reed Company Produces 50,000 Units of Product Q and 6,000