Sofa Company manufactures two models of its couch, the Mini and the Maxi. The Mi

Question

Sofa Company manufactures two models of its couch, the Mini and the Maxi. The Mini model requires 10,000 direct labor hours and the Maxi model requires 40,000 direct labor hours. The company produces 4,000 units of the Mini model and 1,000 units of the Maxi model each year. The company produces the Mini model in batch sizes of 200, while it produces the Maxi model in batch sizes of 100. The company expects to incur $180,000 of total setup costs this year. How much of the setup costs are allocated to the Mini model using ABC costing?

A) 36,000 B)120,000 C)150,000 D)90,000

Explanation / Answer

Allocation of cost to mini model Cost = Total Cost/Total batches 180000/200+100 60000% Total cost of mini 60000*2 $ 120000 The correct answer is B) $ 120000

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