Question

A manufacturing plant produces two types of widgets: standard model; deluxe model. Each unit requires the use of direct labor and labor time per unit differs between models. Manufacturing is done in production runs and each run has a set-up. For the month, the plant recorded the following:

Standard Deluxe

2,000 1,000 Units produced

$20,000 $30,000 Direct labor costs

4 12 Number of production runs

Consider the salaries of production supervisors ($90,000). How much of this cost should be assigned to the standard units?

a. 22,500

b. 30,000

c. 36,000

d. 45,000

e. 60,000

f. 67,500

Answer 1

Salaries of production supervisors = $90,000

Number of production runs of Standard units = 4

Number of production runs of Deluxe units = 12

Total number of production runs = Number of production runs of Standard units + Number of production runs of Deluxe units

= 4 + 12

= 16

Activity rate for Salaries of production supervisors = Salaries of production supervisors/Total number of production runs

= 90,000/16

= $5,625 per production run

Salaries of production supervisors assigned to Standard units = Number of production runs of Standard units x Activity rate for Salaries of production supervisors

= 5,625 x 4

= $22,500

Correct option is (a)