Question
Factory Company makes two products, X and Z. X is being introduced this period, whereas Z has been in production for two years. For the
Factory Company makes two products, X and Z. X is being introduced this period, whereas Z has been in production for two years. For the period about to begin, 1,000 units of each product are to be manufactured. Assume that the only relevant overhead item is the cost of engineering change orders; that X and Z are expected to require eight and two change orders per unit, respectively; that X and Z are expected to require two and three machine hours per unit, respectively; and that the cost of a change order is $60. If Factory allocates engineering change order costs on the basis of machine hours, the product-cost cross-subsidization per unit arising from this traditional costing approach is:
a. $120
b. $240
c. $360
d. $480
e. $60
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