Case Scenario: The Gamble Company
Gamble Company produces 50,000 units of Product Q and 6,000 units of Product Z during a period. In that period, four set-ups were required for color changes. All units of Product Q are black, which is the color in the process at the beginning of the period. A set-up was made for 1,000 blue units of Product Z; a set-up was made for 4,500 red units of Product Z; a set-up was made for 500 green units of Product Z. A set-up was then made to return the process to its standard black coloration and the units of Product Q were run. Each set-up costs $500.
Q1. If set-up cost is assigned on a volume basis for the department, what is the approximate per-unit set-up cost for Product Z?
Q2. If set-up cost is assigned on a volume basis for the department, what is the approximate per-unit set-up cost for the red units of Product Z?
Q3. Assume that Gamble Company has decided to allocate overhead costs using levels of cost drivers. What would be the approximate per-unit set-up cost for the blue units of Product Z?
Q4. Assume that Gamble Company has decided to allocate overhead costs using levels of cost drivers. What would be the approximate per-unit set-up cost for the green units of Product Z?