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In: Accounting

VIP luggage is one of the main product lines for Smith Corporation. Smith uses large molding...

VIP luggage is one of the main product lines for Smith Corporation. Smith uses large molding machines to press a specially formulated chemical compound into metal molds corresponding to different suitcase sizes and shapes. The molded product is then trimmed, lined with fabric, and fitted with accessories such as locks and hinges before being packed and shipped. The following data pertain to the cost of setting up one of the molding machines and the setup cost for the machine is $80,000 per year.
Product (Suitcase type) # of setups per year Hours per setup # of units produced
24" Two-suiter 5 8 300
26" Three-suiter 3 10 200
30" Jumbo Wheeler 2 15 100
Required:
a) Suppose Smith Corporation allocates setup costs to products using the number of setups as the allocation basis. How much setup cost will be allocated to each unit of the three products Smith manufactures?
b) Suppose Smith Corporation allocates setup costs using the total number of setup hours as the allocation basis. How much setup cost will be allocated to each unit of the three products?
c) Suppose Smith allocates setup costs using the number of units produced. Calculate the setup cost allocated to each unit of the three products.
d) Give a condition that would result in the cost allocation per unit in (a) and in (b) would be the same. No calculation required.
e) Give a condition that would result in the cost allocation per unit in (a) and in (c) would be the same. No calculation required.

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ekkarill92 answered 2 years ago
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