Producing 20,000 cell phone units requires $600,000 of prime costs, uses 4,000 machine hours, and takes 2,400 setup hours. The activity rates are $80 per machine hour and $200 per setup hour. What is the unit cost of a cell phone?
A) $30
B) $40
C) $60
D) $70

Question

Quizplus · Accepted Answer

To calculate the unit cost, first calculate the total overhead costs: (4,000 machine hours * $80/machine hour) + (2,400 setup hours * $200/setup hour) = $320,000 + $480,000 = $800,000. Add the prime costs: $600,000 + $800,000 = $1,400,000 total cost. Divide by 20,000 units: $1,400,000 / 20,000 = $70 per unit.

Producing 20,000 Cell Phone Units Requires $600,000 of Prime Costs