Twista Manufacturing has the following activities and activity costs per year: Machining ($20 000); Forklifting ($10 000); machine setup ($32 000), and quality inspection ($40 000). The operation starts with setting up the machines; each batch of products requires a different setup. This is followed by machining, where the cost of machining varies directly with the number of machine hours. Forklifts are used to move the work in progress around. Because quality is important, an inspection is carried out for each batch of products.
The following information is also available:
Number of machine hours per year: 20 000 machine hours
Number of forklift moves per year: 500 moves
Number of batches per year: 4000 batches
Each year, Twista Manufacturing produces 5000 units of Product X. These units of Product X require 5000 machine hours, 120 moves and 500 batches to produce. The direct materials and direct labour together cost $15 per unit of Product X.
The machining costs and quality inspection costs allocated to each unit of Product X are:
A) $0.16 and $0.32
B) $1 and $2
C) $0.5 and $1
D) $1 and $1

Question

Quizplus · Accepted Answer

Machining cost per machine hour = $20,000 / 20,000 machine hours = $1 per machine hour. Product X uses 5000 machine hours, so the machining cost per unit = $1. Quality inspection cost per batch = $40,000 / 4000 batches = $10 per batch. Product X requires 500 batches, so the quality inspection cost per unit = $10 / 500 units = $1.

Twista Manufacturing Has the Following Activities and Activity Costs Per