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

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?