Happy Music Company manufactures two instruments, the Classical Guitar and the H

Question

Happy Music Company manufactures two instruments, the Classical Guitar and the Harmonica. The company produces 10,000 units of the Classical Guitar and 2,000 units of the Harmonica each year. The company produces the Classical Guitar in batch sizes of 400, while it produces the Harmonica in batch sizes of 125. The company expects to incur $410,000 of total setup costs this year. The Classical Guitar requires 15,000 direct labor hours and the Harmonica requires 60,000 direct labor hours. How much of the setup costs are allocated to the Classical Guitar using ABC costing?

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Explanation / Answer

Hi,

Please find the answer as follows;

Set Up Costs Allocated to the Classical Guitar = 410000(Total Set Up Costs)*400 (Batch Size of Classical Guitar)/(400 + 125) = 312381

Answer is 312381

Thanks.

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