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

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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 $ 27,000 $ 18,800 $ 19,000 $ 221,000
Cost driver 1,000 labor hrs. 47 setups Percentage of use 17,000 units

Production of 740 sets of cutting shears, one of the companys 20 products, took 210 labor hours and 10 setups and consumed 19 percent of the product-sustaining activities.

Required

  1. Had the company used labor hours as a companywide 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 740 units are produced. If direct product costs are $130 and the product is priced at 25 percent above cost for what price would the product sell under each allocation system?

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