1 You are a manufacturer who produces products in batches. You currently assign overhead to products based on machine hours (mh). One of the costs included is setup cost. Machines must be setup for each batch. For the past year, total setup costs were $100,000 for two products.

Product A Product B

#Units 4000 6000

Mh/unit 1 3

# Batches 10 40

a) Calculate the setup cost in total and per unit for each product under the current system. b) What is the cost allocation base? c) You have just finished a cost accounting course and have decided to switch to activity based costing system. Recalculate setup cost in total and per unit for each product using # of batches as the cost allocation base. d) Which of the two methods more accurately assigns setup costs to the two products? Explain your answer using cost accounting terminology.