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)$50
D)$60

Question

Quizplus · Accepted Answer

To calculate the unit cost, we need to divide the total prime costs (which includes direct materials and direct labor) by the number of units produced.

Total prime costs = $600,000

Number of units produced = 20,000

Prime cost per unit = $600,000 / 20,000 units = $30

In addition to the prime costs, we also need to add the overhead costs, which are based on the machine hours and setup hours.

Machine hours per unit = 4,000 machine hours / 20,000 units = 0.2 machine hours per unit

Setup hours per unit = 2,400 setup hours / 20,000 units = 0.12 setup hours per unit

Overhead cost per unit = (0.2 machine hours per unit x $80 per machine hour) + (0.12 setup hours per unit x $200 per setup hour) 
= $16 + $24 
= $40

Unit cost = Prime cost per unit + Overhead cost per unit = $30 + $40 = $70

Therefore, the best choice is C.

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