Question

# Alpha Technology produces two products: a high end laptop under the label Excellent Laptops and an...

Alpha Technology produces two products: a high end laptop under the label Excellent Laptops and an inexpensive desktop under the label Outstanding Computers. The two products use two overhead activities, with the following costs:

 Setting up equipment \$3,000 Machining \$15,000

The controller has collected the expected annual prime costs for each product, the machine hours, the setup hours, and the expected production.

 Excellent Laptops Outstanding Computers Direct Labor \$25,000 \$10,000 Direct Materials \$20,000 \$5,000 Expected Production in Units 3,000 3,000 Machine Hours 850 2,000 Setup Hours 80 75

Calculate Outstanding Computer's consumption ratio for setup hours. (Note: Round answer to two decimal places.)

a.0.45

b.0.90

c.0.75

d.0.48

e.0.25

We have to calculate the  Outstanding Computer's consumption ratio for setup hours

So we need two things for it

1. Total Setup Cost = \$3000 (given)
2. Setup Cost of Outstanding Computers = \$1451.61 (Note 1)

So,

Outstanding Computer's consumption ratio for setup hours = \$1451.61 / \$3000 = 0.48387 or 0.48 (after rounding off)

The correct answer is option d. 0.48

Working Notes :

Machine Cost per hour = (\$15000 / 2850 hrs) * 2000 hrs = \$10526.32

Note 1 : Setup Cost of Outstanding Computers = (Total Setup Cost / Total Setup hours) * Outstanding computers Setup hours

1. Total Machine hours = \$3000
2. Total Setup hours = Setup hours of (Excellent Laptops + Outstanding computers) => 80 hrs + 75 hrs = 155 hrs
3. Outstanding computers Machine hours = 75 hours

Machine Cost per hour = (\$3000 / 155 hrs) * 75 hrs = \$1451.61

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