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 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 company’s 20 products, took 270 labor hours and 6 setups and consumed 15 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 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?

Answer 1

b.Allocated using ABC = Driver*Rate
=29000*270/1000 + 17390*6/37 + 19000*15% + 361000*720/19000
27,180
c.
	ABC	Direct Labor hours
Total overhead cost	27,180	115125.3
Overhead cost per unit	37.75	159.90
Direct product Cost	110	110
Overhead cost per unit	37.75	159.89625
Total cost	147.75	269.89625
Selling price	199.4625	364.3599375