Benson 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 $ 59,800 2,600 labor hours. Activities Batch Level $ 21,240 36 setups Product Level $ 15,000 Percentage of use Facility Level $ 160,000 10,000 units Production of 760 sets of cutting shears, one of the company's 20 products, took 130 labor hours and 9 setups and consumed 14 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 760 units are produced. If direct product costs are $120 and the product is priced at 35 percent above cost for what price would the product sell under each allocation system?

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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Benson 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
$ 59,800
2,600 labor hours
Activities
Batch Level
$ 21,240
36 setups
Product Level
$ 15,000
Percentage of use
Facility Level
$ 160,000
10,000 units
Production of 760 sets of cutting shears, one of the company's 20 products, took 130 labor hours and 9 setups and consumed 14
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 760 units are produced. If direct product costs are $120 and the product is priced at 35 percent above cost for what
price would the product sell under each allocation system?
Transcribed Image Text:Benson 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 $ 59,800 2,600 labor hours Activities Batch Level $ 21,240 36 setups Product Level $ 15,000 Percentage of use Facility Level $ 160,000 10,000 units Production of 760 sets of cutting shears, one of the company's 20 products, took 130 labor hours and 9 setups and consumed 14 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 760 units are produced. If direct product costs are $120 and the product is priced at 35 percent above cost for what price would the product sell under each allocation system?
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