Gibson 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: Cost Cost driver Unit Level $ 50,600 2,300 labor hours Activities Batch Level $ 21,160 46 setups Product Level $ 12,000 Percentage of use Facility Level $ 240,000 16,000 units Production of 890 sets of cutting shears, one of the company's 20 products, took 210 labor hours and 9 setups and consumed 10 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 890 units are produced. If direct product costs are $160 and the product is priced at 25 percent above cost for what price would the product sell under each allocation system?

Gibson 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: Cost Cost driver Unit Level $ 50,600 2,300 labor hours Activities Batch Level $ 21,160 46 setups Product Level $ 12,000 Percentage of use Facility Level $ 240,000 16,000 units Production of 890 sets of cutting shears, one of the company's 20 products, took 210 labor hours and 9 setups and consumed 10 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 890 units are produced. If direct product costs are $160 and the product is priced at 25 percent above cost for what price would the product sell under each allocation system?

Name: Gibson Company produces commercial gardening equipment. Since product
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Description: Gibson Company produces commercial gardening equipment. Since production is highly automated, the company allocates itsoverhead costs to product lines using activity-based costing. The costs and cost drivers associated with the four overhead activit

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter4: Activity-based Costing

Section: Chapter Questions

Problem 1PA: Gwinnett County Chrome Company manufactures three chrome-plated productsautomobile bumpers, valve...

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