Producing 10,000 units of a cell phone requires $300,000 of prime costs, uses 2,000 machine hours, and takes 1,200 setup hours. The activity rates are $40 per machine hour and $100 per setup hour. What is the unit cost of a cell phone?
A) $60
B) $40
C) $50
D) $100
E) $30

Question

Quizplus · Accepted Answer

To find the unit cost of a cell phone, we need to add up the costs of all the activities involved in producing it.

The total cost of machine hours is 2,000 x $40 = $80,000.

The total cost of setup hours is 1,200 x $100 = $120,000.

The total prime cost is $300,000.

Therefore, the total cost of producing 10,000 units of a cell phone is:

$80,000 + $120,000 + $300,000 = $500,000

To find the unit cost, we divide the total cost by the number of units:

$500,000 / 10,000 = $50

So the answer is C) $50.

Producing 10,000 Units of a Cell Phone Requires $300,000 of Prime