Barr Company makes steel and titanium handle bars for bicycles. It requires appr

Question

Barr Company makes steel and titanium handle bars for bicycles. It requires approximately 1 hour of labor to make one handle bar of either type. During the most recent accounting period, Barr Company made 6,100 steel bars and 3,900 titanium bars. Setup costs amounted to $51,000. One batch of each type of bar was run each month. If a single company-wide overhead rate based on direct labor hours is used to allocate overhead costs to the two products, the amount of setup cost assigned to the steel bars will be:

Explanation / Answer

Total direct labor hours = 6,100 x 1 + 3,900 x 1 = 10,000

Therefore the total amount of setup costs assigned to the batch of steel bars = 6,100 / 10,000 x 51,000 = $ 31,110

Amount of setup cost assigned to each steel bar = $ 31,110 / 6,100 = $ 5.10

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