Question

17) Siri Co makes wicker and wooden picnic baskets. It requires approximately one hour of labor to make one basket of either type. Wicker baskets are produced in batches of 100 units and require 0.5 machine hours per basket. Wooden baskets are produced in batches of 50 units and require 0.75 machine hours per basket. Setup is required for each batch. During the most recent accounting period, the company made 8,000 wicker baskets and 2,000 wooden slat baskets. Setup costs amounted to $24,000 for the baskets produced during the period. If activity-based costing is used to allocate overhead costs to the two products, the amount of setup cost assigned to the wicker baskets will be: A. $19,200 B. $16,000 C. $17,455 D. $12,000

Answer 1

Answer: B. $16,000

Explanation:

Wicker baskets are made in 100 unit batches and a setup is required for each batch.

If 8,000 wicker baskets were made, the number of batches and setups was:

= 8,000 / 100

= 80 wicker basket setups

If 2,000 wooden slat baskets were made, the number of batches and setups was:

= 2,000 / 50

= 40 wooden slat basket setups

Cost allocated to wicker basket setup = Wicker basket setups / (Wicker basket setups + Wooden slat baskets setups) * Setup costs for the period

= 80 / (80 + 40) * 24,000

= $16,000