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I did not understand how the overheads were gotten (set up costs,stores receiving inspection/quality control & materials).Pls explain.
The question tells you what the overheads were – for example, it says that the set-up costs were 5,250.
If you are asking how we worked out the cost per unit for each product (which is a different question) we first of all calculated the cost per production run (because the question says that the number of production runs is the cost driver).
Since we are told that each production run is for 20 units, it means that P has 120/20 = 6 production runs. Q has 100/20 = 5 production runs; R has 80/20 = 4 production runs; and S has 120/20 = 6 production runs.So…the total number of production runs is 6 + 5 + 4 + 6 = 21.
So….the cost per production run is 5250/21 = $250.
The rest of the answer should now make sense.
If it does not then ask again (provided, of course, that you have watched my free lecture on ABC!)
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