A manufacturing company has the following two activities associated with complet

Question

A manufacturing company has the following two activities associated with completion of products: The setting up of machines for running batches of products The actual production of units produced The company has annual manufacturing overhead costs of $2,000,000, of which $200,000 is directly involved in setting up machines for batch runs. During the year, the company expects to perform 400 machine setups, one setup per batch for a total of 400 batches of production. Assume that the batch sizes vary considerably, but the work involved in setting up the machines is not appreciably different from one job to the next. If the company estimates that the $200,000 costs associated with setups will yield 400 setups this year, the cost associated directly with each setup will be______ $ per setup. Because each job will require its own setup, setup costs are viewed as batch costs. Because $200,000 of the $2,000,000 are costs associated with setups, this means that costs associated directly with the production of units equal ____$.

Explanation / Answer

The cost associated directly with each setup = $200,000/400setups

= $500

The cost associated directly with production of units equal to = $2,000,000 - $200,000

= $1,800,000

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