This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: Now, lets consider the cost of setting up a machine to produce components for the products. Each time a batch of components for Product A or a batch of components for Product B is produced it costs $1,000 to setup the machine. Product A Product B Run (batch) size 400 units 100 units # of batches 50 batches 50 batches Total setup costs for all setups $50,000 $50,000 . What is the True Cost per unit for Setup Cost? Product A: $50,000 / 20,000 units = $2.50 per unit Product B: $50,000 / 5,000 units = $10.00 per unit How much Setup Cost is allocated to each unit? P.O.R. = ($50,000 + $50,000) / ((2 x 20,000) + (2 x 5,000)) = $2 per dlh Product A: 2 dlh x $2/dlh = $4 per unit Product B: 2 dlh x $2/dlh = $4 per unit Does our allocation method over-cost or under-cost our products? Product A: Overcosts Product B: Undercosts...
View Full Document
- Spring '08
- Managerial Accounting