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A company manufactures memory chips for phones. A customer has ordered 300 chips.
A standard batch of 100 chips has the following costs:
Direct materials
$25
Direct labour
$10
Machine set up
$100
The production overheads are $100 per labour hour. Labour is paid $20 per hour.
What is the cost of this customer order?
In the answer, the machine setup cost has been mentioned as $300$. Why has the machine setup been performed thrice? Since different products have not been produced, the machine setup should remain the same, shouldn’t it?
The costs are for batches of 100 chips, and the customer wants 300 chips. So they need to make 3 batches.
Okay, but given that they produce the same chips, wouldn’t they need to reconfigure the machine ?
Maybe not, but the question specifically says that $100 is the cost for a batch of 100 chips, and there are 3 batches.
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