Thomas Company Had the Following Information Suppose Thomas Could Reduce Setup Costs by $500 Per Setup

question 106

Multiple Choice

Thomas Company had the following information: $\begin{array}{lcc} \underline{\text { Activity Driver}}& \underline{\text { Unit Variable Cost }}&\underline{\text { Level of Activity Driver}}\\\text { Units sold } & \$ 20 & -- \\\text { Setups } & 1,000 & 80 \\\text { Engineering hours } & 60 &2,000 \\\text { Other data: } & &\end{array}$

$\begin{array}{lc}\text { Total fixed costs (traditional) } & \$ 800,000 \\\text { Total fixed costs (ABC) } & \$ 400,000 \\\text { Unit selling price } & \$ 40\end{array}$ Suppose Thomas could reduce setup costs by $500 per setup and could reduce the number of engineering hours needed to 1,216 2/3 hours.How many units must be sold to break even in this case?

• A)11,250 units
• B)25,050 units
• C)25,650 units
• D)30,000 units

Understand the purpose of overhead allocation and its implications on product costing.

Understand the principles and application of activity-based costing (ABC).

Calculate overhead rates and apply them to determine product costs under ABC.

Compare and contrast traditional costing and ABC for product costing.

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