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Question - A manufacturing plant produces two types of widgets: standard model; deluxe model. Each unit requires the use of direct labor and the labor time per unit differs between models. Manufacturing is done in production runs and each run has a set up involving the programming of machinery. For January, the plant recorded the following:
Standard
Deluxe
Units produced
2,000
1,000
Direct labor costs
$20,000
$30,000
Number of production runs
4
12
Assume that the plant had only two manufacturing overhead costs: $180,000 salaries of production supervisors; $150,000 setup costs.
Determine the allocation ratio for assigning the setup costs to the Standard Model.
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