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Question - A company manufactures two products; Alien and Dragon. Dragon has more complex design and requires more setup time than Alien.
Setups for Alien require 2hours on average while Dragon requires 3hours. The companies setup department employes 10 workers where the average wage is 10$ per hour; fringe benefits cost 38% of the wages. Other costs for setup activities amount to $25% per setup. The company plans to use 10 of the workers for 40 hours each for the first 3weeks of the season. The amount of work for these three weeks is:
Week
Number of setups for Dragon
Number of setups for Alien
1
75
85
2
70
90
3
80
Required -
a) Based on the information presented above, determine the actual setup activity cost driver rate based on (1) the number of setups and (2) the number of setup hours.
b) Is either of the two activity cost driver rates or some other rate appropriate in this case? Explain why.
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