Question

Racer X Corporation manufactures two models of motorized go-carts, a standard and a deluxe model. The following activity and overhead cost information has been compiled:

                               Number of              Number of                        Number of

Product                         Setups           Components          Direct Labor Hours

Standard                              15                           10                                   800

Deluxe                                35                           15                                   400

Overhead costs     Set-up activity       Inspection Activity                                   

                                   $50,000                  $40,000

Racer X hopes to reduce the overhead costs associated with the setups in the long-run:

i) By reducing the cost of performing each set up by 10% and

ii) By reducing the setups for standard from 15 to 10 and for deluxe from 35 to 30.

What are the long-run expected savings at the setup activity pool from these process improvements?

		$3,000
		$14,000
		$9,000
		$5,000

Number of setups and number of components are identified as activity-cost drivers for the set-up activity and inspection activity, respectively. Assuming an activity-based costing system is used, what is the total amount of overhead cost assigned to the standard model?

		$46,000
		$35,000
		$59,000
		$31,000

Answer 1

solution's Activity rate per setup TODD 10% Reduction & in each set up cost . 900 (ludox (1-2015] er setup Reduced sate per setup (1000- (ovo x15%)] Number of setups reduced (5-10)+(35-30)7 1o Total savings [goux 10] = $ 9000 option is is correct - cost driver | Activity cost rokme nctility Rate 50000 # of set ups # of components 50 Ooo 50000 1000 4000 – 1600 Total activity cost assigned toov X 35 = 3 SUDO 1600 x 15 = 24ooo $59000 option 3 is correct