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?

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?

Name: Benson Company produces commercial gardening equipment. Since product
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Description: Benson 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 12E: Activity cost pools, activity rates, and product costs using activity-based costing Caldwell Home...

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Concept explainers

Process Costing

Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure. 

Job Costing

Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.

ABC Costing

Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.

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Question

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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