Outdoor Texas makes umbrellas gazebos and chaise lounges. The company uses a tr

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    Outdoor Texas makes umbrellas gazebos and chaise lounges. The company uses a traditional overhead allocation scheme and assigns overhead to products at the
    rate of $30 per direct labor hour. The costs per unit for each product group in 2013 were as follows:
    Umbrellas

    Gazebos

    Lawn Chairs

    Direct material

    $ 12

    $ 120

    $ 12

    Direct labor

    overhead

    18

    24

    135

    180

    45

    60

    Total 54 435 117

    Because profitability has been lagging and competition has been getting more intense Outdoor Living is considering implementing an activity-based costing
    system for 2014. In analyzing the 2013 data management determined that all $12030000 of factory over head could be assigned to four basic activities:
    quality control setups material handling and equipment operation. Data from 2013 on the costs associated with each of the four activities follows:

    Quality Control

    Setups

    Material Handling

    Equipment Operation

    Total costs

    $ 630000

    $ 600000

    $1900000

    $14970000

    $18000000

    ManMagement determined that the following allocation bases and total 2013 volumes for each allocation base could have been useused for ABC:

    Activity

    Base

    Volume

    Quality control

    Number of units produced

    280000

    Setups

    Number of setups

    2000

    Material handling

    Pounds of material used

    4000000

    Equipment operation

    Number of machine hours

    2000000

    Volume measures for 2006 for each product and each allocation base were as follows:

    Umbrellas

    Gazebos

    Chaise Lounges

    Number of units

    300000

    30000

    90000

    Number of setups

    600

    1300

    1100

    Pounds of material

    1200000

    3000000

    1800000

    Number of machine hours

    600000

    1100000

    1300000
    a. How much direct labor time is needed to produce an umbrella a gazebo and a chaise lounge?
    b. For 2013 determine the total overhead allocated to each product group using the traditional allocation based on direct labor hours.
    c. For 2013 determine the total overhead that would have been allocated to each product group if activity-based costing were used. Compute the cost per unit
    for each product group.
    d. Louisiana Leisure has a policy of setting sales prices based on product costs. How would the sales prices using activity-based costing differ from those
    obtained using the traditional overheadallocation?

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