Question
Fanning 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
Fanning 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 | $ 31,200 | $ 15,200 | $ 16,000 | $ 198,000 | |||
Cost driver | 1,200 | labor hours | 38 | setups | Percentage of use | 18,000 | units |
Production of 720 sets of cutting shears, one of the companys 20 products, took 300 labor hours and 8 setups and consumed 14 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 720 units are produced. If direct product costs are $130 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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