Question

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

Answer 1

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