A company uses activity-based costing. The company produces two products, 001 and 002.
Information relating to 001 is as follows:
Units produced: 38,000
Machine-hours: 15,000
Direct labor hours: 16,000
Materials handling (number of moves): 8,000
Setups: 10,000
Information for 002 is as follows:
Units produced: 50,000
Machine-hours: 17,000
Direct labor-hours: 24,000
Materials handling (number of moves): 12,000
Setups: 14,000
The following costs are reported:
Materials handling: $160,000
Labor-related overhead: $480,000
Setups: $240,000
What is the setup cost assigned to product 002?
To determine the setup cost assigned to product 002 using activity-based costing, you need to allocate the setup costs based on the activity drivers. In this case, the setup costs are allocated based on the number of setups for each product.
Let's calculate the cost per setup first:
Cost per setup = Total setup costs / Total number of setups
Cost per setup = $240,000 / (10,000 + 14,000) [from the given information]
Cost per setup = $240,000 / 24,000
Cost per setup = $10
Now, to find the setup cost assigned to product 002, you need to multiply the number of setups for product 002 by the cost per setup.
Setup cost assigned to product 002 = Number of setups for product 002 * Cost per setup
Setup cost assigned to product 002 = 14,000 * $10 [from the given information]
Setup cost assigned to product 002 = $140,000
Therefore, the setup cost assigned to product 002 is $140,000.