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Allocation of costs

Comparing two companies that manufacture lawn chairs.

Superior model requires 10,000 direct labor hours(4000 units batch size 200)

Deluxe model requires 40,000 direct labor hours (1,000 units batch size 100)
Company expects to incur $120,000 of total setup costs

I would like to know how much of the setup costs are allocated to Superior model using ABC costing

Thanks.

Solution Preview

Setup costs should be allocated based on number of batches, since each batch needs a setup. In ABC the cost driver is chosen ...

Solution Summary

The solution explains how to allocate costs under activity based costing

$2.19