ACCA PM · Chapter 2 · Question 1 of 9
Delta Co makes two products, X and Y. Budgeted overheads are: machine set-ups $120,000; materials handling $80,000; machining $200,000. Product X: 4,000 units, 2 machine hours per unit, 30 set-ups, 50 material movements. Product Y: 1,000 units, 4 machine hours per unit, 50 set-ups, 110 material movements. What is the cost driver rate for machine set-ups?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) $1,500 per set-up
Explanation
Total set-ups = 30 + 50 = 80. Cost driver rate = $120,000 / 80 = $1,500 per set-up. Dividing by only one product's set-ups, or by machine hours, would not reflect the activity that causes set-up costs.
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