Variable factory overheads are estimated to be $1,200,000 per month, when 1,000,000 pounds of various products are produced. the plant employs 20 chemical workers who typically work 175 hours each per month and are paid $24 per hour. other workers are classified as indirect and are included in fixed overheads. the highly automated plant typically runs 21,000 machine hours per month. the preparation of one 100 lbs batch of xentra needs ten minutes of direct labor and 75 minutes of machine time. fixed manufacturing overheads total $3,500,000 per month. forty percent of these fixed manufacturing overheads are labor-related costs and the balance are machine-related costs. a government agency wants to purchase 200 drums of xentra at cost plus a flat fee. which allocation method gives the profit-maximizing result?

Zachary 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 $ 64,800 $ 27,730 $ 15,000 $ 154,000 cost driver 2,400 labor hrs. 47 setups percentage of use 11,000 units production of 780 sets of cutting shears, one of the company’s 20 products, took 240 labor hours and 7 setups and consumed 15 percent of the product-sustaining activities. required: (a) had the company used labor hours as a company wide 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 780 units are produced. if direct product costs are $150 and the product is priced at 30 percent above cost for what price would the product sell under each allocation system? (d) assuming that activity-based costing provides a more accurate estimate of cost, indicate whether the cutting shears would be over- or underpriced if direct labor hours are used as an allocation base. explain how over-or undercosting can affect vaulker's profitability. (e) comment on the validity of using the allocated facility-level cost in the pricing decision. should other costs be considered in a cost- plus pricing decision? if so, which ones? what costs would you include if you were trying to decide whether to accept a special order?