3 1- 3 points Reynolds Pen Company produces standard pens and luxury pens. Standard pens are in much greater demand in the market and the firm sells 120,000 standard pens a year. The company sells 6,000 luxury pens per year in small boutiques. Both pens use the identical production process and production facilities. Direct labor is $0.50 per pen and direct material is $0.50 per pen. Pens are produced in batches. Standard pens are produced in batches of 500 units and luxury pens in batches of 50. Each batch of pens goes through the Z10, which is the machine that converts raw inputs into pens. Each batch requires engineers to reset the machine for the next batch, calibrate settings, and test the first 10 pens for product quality and conformity to standards. Even if sequential batches of the same pens are made, setups must be performed for each new batch. All the overhead costs are incurred in setups. Indirect labor, indirect materials, and supplies consumed during setup cost $360,000 per year. The only costs of producing pens are direct labor, direct materials, and the overhead of setups. The company is currently allocating setup costs to pens based on direct labor costs. The firm has been selling standard pens for $4 per unit and luxury pens for $6 per unit. But foreign competition for standard pens is starting to put pressure on the $4 price. Some competitors are selling standard pens for as low as $3 per unit. Management is considering putting more emphasis on selling luxury pens, whose margins are higher. On the other hand, management worries that the current system for allocating overhead costs is misrepresenting the costs of the two products because direct labor costs are not representative of the time spent by each product on the Z10. Management is considering allocating setup costs using machine hours on the Z10. A batch of luxury pens requires one hour of machine time and a batch of standard pens requires 20 hours of machine time. What is the cost of a luxury pen if the common costs are allocated on the basis of the number of batches? Type your answer...