Rather Bedding Makes Two Types of Pillow-Down and Foam Using ABC, What Is the Cost Per Setup to Be

question 92

Multiple Choice

Rather Bedding makes two types of pillow-down and foam.It is currently implementing an activity-based costing system.In the past, all overhead had been applied on the basis of machine hours.The company produces 6,000 down pillows and 18,000 foam pillows per year. $\begin{array}{|l|c|c|c|c|}\hline{\text { Cost Pool }} & \begin{array}{c}\text { Driver and } \\\text { Level }\end{array} & \begin{array}{c}\text { Estim ated } \\\text { Costs }\end{array} & \begin{array}{c}\text { Use of Driver by } \\\text { Down Pillows }\end{array} & \begin{array}{c}\text { Use of Driver by } \\\text { Foam Pillows }\end{array} \\\hline \text { Equipment setup } & 360 \text { setups } & \$ 216,000 & 120 \text { setups } & 240 \text { setups } \\\hline \begin{array}{l}\text { Materials } \\\text { ordering }\end{array} & 6,000 \text { orders } & \$ 60,000 & 2,400 \text { orders } & 3,600 \text { orders } \\\hline \text { Quality control } & \begin{array}{c}2,000 \\\text { inspections }\end{array} & \$ 36,000 & 800 \text { inspections } & 1,200 \text { inspections } \\\hline \text { Machining } & \begin{array}{c}8,000 \\\text { machine } \\\text { hours }\end{array} & \$ 86,800 & \begin{array}{c}4,200 \text { machine } \\\text { hours }\end{array} & \begin{array}{c}3,800 \text { machine } \\\text { hours }\end{array} \\\hline\end{array}$ Using ABC, what is the cost per setup to be assigned to down pillows?

• A)$600 per setup
• B)$0.10 per setup
• C)$3.02 per setup
• D)None of these answer choices are correct.

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