Question

The projected production levels for the upcoming period are 1,000 Square pillows and 5,000 Round pillows. The following information was compiled for the product lines: machine hours Square 0.9 hours per pillow 25 pillows per setup Round 0.3 hours per pillow 25 pillows per setup setups Which of the following statements is correct with regard to the above information? A. Under the current costing system, 37.5% of the machine setup manufacturing overhead costs are allocated to the Square product line. B. The cost distortion per unit for both the Square and the Round product lines with respect to the machine setup manufacturing overhead costs is equal. C. The current costing system is undercosting both the Square and Round product lines with respect to machine setup manufacturing overhead costs. D. Under activity based costing, 50% of the machine setup manufacturing overhead costs is allocated to the Round product line. O E. None of the above statements are correct.

Answer 1

2nd statement is correct.

Analysis of statement:-

1.

	Square Pillow	Round Pillow
Production	1,000	5,000
Production per Set up	25	25
No. of Setups	40	200
Let x be th cost per Setup - Set up cost per unit	= (40 * X)/1,000 = X/25	= (200 * X)/5,000 = X/25

Hence, Cost per unit for both the products in respect of machine set up is same.