Question

Valpar Company produces several lines of laundry hampers. The factory is highly automated and uses an activity-based costing system to allocate overhead costs to its various products. During the upcoming period the company expects to produce 72,000 units. The costs and cost drivers associated with four activity cost pools are given below:

Activities	Unit Level	Batch Level	Product Level	Facility Level
Cost	$20,000	$8,000	$15,000	$36,000
Cost Driver	4,000 labor hours	200 set-ups	% of use	72,000 units

Production of 20,000 units of its popular foldable hamper required 2,000 labor hours, 50 setups, and consumed one-quarter of the product sustaining activities. What amount of batch-level costs will be allocated to the product? Please show your work.

$450

$1,000

$2,500

$2,000

Answer 1

The correct answer is $2,000.

Supporting calculations:

Overhead Rate of batch level cost per set up = $8,000 / 200 set ups

= $40 per set up

Amount of batch-level costs allocated to the product = $40 per set up * 50 set-ups

= $2,000

Therefore, the correct answer is $2,000.