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 and cost drivers associated with the four overhead activity cost pools follow: Activities Unit Level Batch Level Product Level Facility Level Cost $ 35, 700 $14,960 $13,000 $360,000 Cost driver 1,700 labor hrs. 34 setups Percentage of use 20,000 units Production of 840 sets of cutting shears, one of the company's 20 products, took 100 labor hours and 5 setups and consumed 19 percent of the product-sustaining activities. Required a. Had the company used labor hours as a companywide allocation base, how much overhead would it have allocated to the cutting shears? b. How much overhead is allocated to the cutting shears using activity-based costing? c. Compute the overhead cost per unit for cutting shears first using activity-based costing and then using direct labor hours for allocation if 840 units are produced. If direct product costs are $200 and the product is priced at 30 percent above cost for what price would the product sell under each allocation system? Complete this question by entering your answers in the tabs below. Req A and B Reg C 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? (Round intermediate calculations to 2 decimal places. Round your final answers to the nearest whole dollar amount.) Allocated cost Allocated cost b. < Req A and B ReqC

Answer 1

a. Single overhead rate = (35700+14960+13000+360000)/1700 = $249.21 per labor hour

Overhead allocated = 100 x $249.21 = $24921
Overhead per unit = $24921/840 = $29.67 per unit

b.

Overhead	Activity Cost	Quantity of cost driver		Activity Rate
a	b	c		d=b/c
Unit level	$           35,700	1700	labor hours	$           21.00	per labor hour
Batch level	$           14,960	34	Number of Setups	$         440.00	per setup
Product level	$           13,000
Facility level	$        3,60,000	20000	units	$           18.00	per unit
	$        4,23,660
Overhead allocation
	Cutting Shears
Unit level	$              2,100	=100*21
Batch level	$              2,200	=5*440
Product level	$              2,470	=13000*19%
Facility level	$           15,120	=840*18
Total	$           21,890
Total Units	840
Overhead cost per unit	$             26.06

c.

	ABC	Labor hours
Allocated Overhead	$             26.06	$              29.67
Direct Cost	$           200.00	$           200.00
Total Cost per unit	$           226.06	$           229.67
Desired Profit	$             67.82	$              68.90
Selling price	$           293.88	$           298.57