Reference no: EM132659788

The Pikes Peak Leather Company manufactures leather handbags (H) and moccasins (M). The company has been using the factory overhead rate method but has decided to evaluate the activity-based costing to allocate factory overhead. The factory overhead estimated per unit together with direct materials and direct labor will help determine selling prices.

Total Budgeted factory overhead cost = $360,000

Products        Cutting direct labor hours     Sewing direct labor hours     Setups          QC Inspections     Purchase orders

Handbags                    60,000                    60,000                                 500                    200                     100
Moccasins                   40,000                      80,000                                                           300
Total                             100,000                    140,000                             800                    1,000                    400
Budget                              $40,000                    $210,000                   $80,000                 $20,000                $10,000

Problem a: Calculate the amount of factory overhead to be allocated to each unit using activity-based costing. The factory plans to produce 60,000 handbags and 40,000 moccasins.

1. Handbags $ per unit
2. Moccasins $ per unit