Smythe Crystal makes fine tableware in its Ireland factory. The following data a

Question

Smythe Crystal makes fine tableware in its Ireland factory. The following data are taken from its production plans for the year. Required Determine the setup cost per unit tor the wineglasses and for the commemorative vases if setup costs are assigned using a single plantwide overhead rate based on direct labor hours. Determine setup costs per unit tor the wineglasses and tor the commemorative vases if the setup are assigned based on the number of setups. Which method is better for assigning costs to each product? Explain

Explanation / Answer

Ans a Plantwide Overhead Rate Estimated Overhead/Direct Labour hours 630000/(254000+16400) 2.33 per hour Wineglasses Commemorative No. of hours required to produce one unit 1.20 0.96 254000/211000 16400/17000 Setup Cost per unit 2.80 2.25 Ans rounded off 2.33*1.2 .96*2.33 Total set up cost divided among both 591790 38210 Ans b Overhead rate=Estimated Overhead/No. ofSetup 630000/1000 630 per set up Wineglasses Commemorative No.of setup required to produce one unit 0.0009479 0.0470588 200/211000 800/17000 Setup cost per unit 0.60 29.65 rounded off 630*.0009479 630*.047058 Total set up cost divided among both 126000 504000 Ans c I think setup cost divided according to no. of setup gives more appropriate cost allocation As ubder ABC costing the cost is allocated accirding to the cost driver associated with the activity So in this case machine setup is the appropriate cost driver on which allocation of cost should be made

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