What cross-subsidy arising from plant-wide rate costing is

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Factory Company makes two products, X and Z. X is being introduced this period, whereas Z has been in production for 2 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 four and two change orders, respectively; that X and Z are expected to require 2 and 3
machine hours, respectively; and that the cost of a change order is $800.

Question 1 : If Factory applies engineering change order costs on the basis of machine hours, the cross-subsidy arising from this plant-wide rate (peanut butter) costing approach is:

  1. $960.
  2. $4,800.
  3. $1,280
  4. $1 ,600 0000

Reference no: EM132501939

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