Perez Company produces commercial gardening equipment. Since production is highly automated, the company allocates its...
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Accounting
Perez 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
$ 37,800
$ 15,640
$ 13,000
$ 304,000
Cost driver
1,400
labor hours
34
setups
Percentage of use
16,000
units
Production of 850 sets of cutting shears, one of the companys 20 products, took 270 labor hours and 6 setups and consumed 17 percent of the product-sustaining activities.
Required
Had the company used labor hours as a companywide allocation base, how much overhead would it have allocated to the cutting shears?
How much overhead is allocated to the cutting shears using activity-based costing?
Compute the overhead cost per unit for cutting shears first using activity-based costing and then using direct labor hours for allocation if 850 units are produced. If direct product costs are $200 and the product is priced at 35 percent above cost for what price would the product sell under each allocation system?
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