A firm produces and sells two products,Plus and Max.The following information is available relating to setup costs (a part of factory overhead): With traditional two-stage allocation of overhead costs,using direct labor hours as the allocation base,the setup cost portion of overhead that is allocated to each unit of product for Plus and Max,respectively is:
A)$.80;$.80.
B)$3.20;$3.20.
C)$4.00;$4.00.
D)$160.00;$12,800.00.
E)$200.00;$16,000.00.

Question

A firm produces and sells two products,Plus and Max.The following information is available relating to setup costs (a part of factory overhead):  With traditional two-stage allocation of overhead costs,using direct labor hours as the allocation base,the setup cost portion of overhead that is allocated to each unit of product for Plus and Max,respectively is:
A)$.80;$.80. 
B)$3.20;$3.20. 
C)$4.00;$4.00. 
D)$160.00;$12,800.00. 
E)$200.00;$16,000.00.

Quizplus · Accepted Answer

The question states that traditional two-stage allocation of overhead costs is used, with direct labor hours as the allocation base. However, the actual amount of direct labor hours used is not given. Therefore, we cannot calculate the allocation rates based on direct labor hours.

Instead, we can use the information given in the table to calculate the total setup costs for each product, and then divide by the total number of units produced for each product to get the setup cost per unit.

For Plus:
Total setup costs = $80,000
Total units produced = 20,000
Setup cost per unit = $80,000 / 20,000 = $4.00

For Max:
Total setup costs = $64,000
Total units produced = 16,000
Setup cost per unit = $64,000 / 16,000 = $4.00

Therefore, the answer is C: $4.00; $4.00.

A Firm Produces and Sells Two Products,Plus and Max