Westmorland makes ink that it uses in ball point pens. The Company produces two colors of ink. One is blue the other is red. Ink is made in batches with setup costs being $2,000 per batch. Demand for blue ink is significantly stronger than for red ink. During the most recent week, the company made 2 batches of ink, one blue the other red. It requires 1 hour of labor to make a gallon of ink regardless of color. There were 300 hours of labor used to make the blue ink and the 100 hours of labor used to make the red ink. If the Company uses activity-based costing and allocates the setup cost on the basis of the number of batches, the setup cost allocated to the (please show your work)

Multiple Choice

blue ink is $1,000 and red ink is $3,000.

blue ink is $2,000 and red ink is $2,000.

blue ink is $3,000 and red ink is $1,000.

blue ink is $4,000 and red ink is zero.