Question

Munoz Company produces commercial gardening equipment. Since production is highly automated, the company allocates its overhead costs to product lines using activity-based costing. The costs and cost drivers associated with the four overhead activity cost pools follow:

Activities
	Unit Level		Batch Level		Product Level		Facility Level
Cost	$	72,900	$	15,840	$	11,000	$	306,000
Cost driver	2,700 labor hrs.		33 setups		Percentage of use		17,000 units

Production of 860 sets of cutting shears, one of the company’s 20 products, took 250 labor hours and 9 setups and consumed 20 percent of the product-sustaining activities.

Required

1. Had the company used labor hours as a company wide allocation base, how much overhead would it have allocated to the cutting shears?

2. How much overhead is allocated to the cutting shears using activity-based costing?

3. Compute the overhead cost per unit for cutting shears first using activity-based costing and then using direct labor hours for allocation if 860 units are produced. If direct product costs are $120 and the product is priced at 30 percent above cost for what price would the product sell under each allocation system?

Compute the overhead cost per unit for cutting shears first using activity-based costing and then using direct labor hours for allocation if 860 units are produced. If direct product costs are $120 and the product is priced at 30 percent above cost for what price would the product sell under each allocation system? (Round intermediate calculations and final answers to 2 decimal places.)

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	ABC Labor Hrs Allocated overhead Direct cost Total cost per unit Desired profit Sales price

Answer 1

the detailed answer of the above question for calculating allocated cost per unit and sales price price per unit are explained below.