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Solomon Company produces commercial gardening equipment. Since production is highly automated, the company allocates its overhead...

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?

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