The Pikes Peak Leather Company manufactures leather handbags (H) and moccasins (M). The company has been using the factory overhead rate method but has decided to evaluate the activity-based costing to allocate factory overhead. The factory overhead estimated per unit together with direct materials and direct labor will help determine selling prices.

Total Budgeted factory overhead cost = $360,000

Products Cutting direct labor hours Sewing direct labor hours Setups

QC Inspections Purchase orders

Handbags 60,000 60,000 500 200 100

Moccasins 40,000 80,000 300 800 300

Total 100,000 140,000 800 1,000 400

Budget $40,000 $210,000 $80,000 $20,000 $10,000

Calculate the amount of factory overhead to be allocated to each unit using activity-based costing. The factory plans to produce 60,000 handbags and 40,000 moccasins.

1. Handbags $ per unit

2. Moccasins $ per unit