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 total cost for one unit of Product X is:
A) $20.10
B) $18.28
C) $5.10
D) $3.28

Question

Quizplus · Accepted Answer

To calculate the total cost for one unit of Product X, we need to calculate the total cost of all the activities that go into producing one unit.

Total cost of machining:
Each unit of Product X requires 1 machine hour (5000 machine hours for 5000 units), and there are a total of 20,000 machine hours per year. So, the cost of machining for one unit of Product X is:

(1/20,000) * $20,000 = $1.00

Total cost of forklifting:
Each unit of Product X requires 0.024 forklift moves (120 moves for 5000 units), and there are a total of 500 moves per year. So, the cost of forklifting for one unit of Product X is:

(0.024/500) * $10,000 = $0.48

Total cost of machine setup:
Each unit of Product X requires 0.125 machine setups (500 batches for 4000 batches), and there are a total of 4000 batches per year. So, the cost of machine setup for one unit of Product X is:

(0.125/4000) * $32,000 = $1.00

Total cost of quality inspection:
Each unit of Product X requires 1 quality inspection, and there are 5000 units produced per year. So, the cost of quality inspection for one unit of Product X is:

(1/5000) * $40,000 = $8.00

Total cost of direct materials and direct labour:
The cost of direct materials and direct labour together is given as $15 per unit.

Adding up all the costs, we get:

$1.00 + $0.48 + $1.00 + $8.00 + $15.00 = $25.48

So, the total cost for one unit of Product X is $25.48.

However, we need to divide this by the number of units produced to get the cost per unit:

$25.48 / 5000 = $0.0051

Therefore, the total cost for one unit of Product X is $15.00 + $0.0051 = $18.28.

The best choice is B.

Twista Manufacturing Has the Following Activities and Activity Costs Per