In: Accounting
Solomon 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 | $ | 75,600 | $ | 22,800 | $ | 11,000 | $ | 234,000 |
Cost driver | 2,800 labor hrs. | 40 setups | Percentage of use | 13,000 units | ||||
Production of 830 sets of cutting shears, one of the company’s 20
products, took 270 labor hours and 7 setups and consumed 18 percent
of the product-sustaining activities.
Required
a. Had the company used labor hours as a company wide allocation base, how much overhead would it have allocated to the cutting shears?
b. How much overhead is allocated to the cutting shears using activity-based costing?
c. Compute the overhead cost per unit for cutting shears first using activity-based costing and then using direct labor hours for allocation if 830 units are produced. If direct product costs are $200 and the product is priced at 30 percent above cost for what price would the product sell under each allocation system?