Question
Jordan 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
Jordan 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 | $ | 29,000 | $ | 17,390 | $ | 19,000 | $ | 361,000 |
Cost driver | 1,000 labor hrs. | 37 setups | Percentage of use | 19,000 units | ||||
Production of 720 sets of cutting shears, one of the companys 20 products, took 270 labor hours and 6 setups and consumed 15 percent of the product-sustaining activities.
Required
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Had the company used labor hours as a companywide allocation base, how much overhead would it have allocated to the cutting shears?
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How much overhead is allocated to the cutting shears using activity-based costing?
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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 $110 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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