Louisiana Leisure 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 2010 were as follows:

Because profitability has been lagging and competition has been getting more intense, Louisiana Leisure is considering implementing an activity-based costing system for 2011. In analyzing the 2010 data, management determined that its $12,030,000 of factory overhead could be assigned to four basic activities: quality control, setups, material handling, and equipment operation. Data for the 2010 costs associated with each of the four activities follow.

Management determined that the following allocation bases and total 2010 volumes for each allocation base could have been used for ABC:
Activity Base
Quality control ..........Number of units produced
Setups ..............Number of setups
Material handling ........Pounds of material used
Equipment operation .......Number of machine hours
Volume measures for 2010 for each product and each allocation base were as follows:

a. How much direct labor time is needed to produce an umbrella, a gazebo, and a chaise lounge?
b. For 2010, determine the total overhead allocated to each product group using the traditional allocation based on direct labor hours.
c. For 2010, 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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Umbrellas $12 18 24 $54 Gazebos $120 135 180 $435 Chaise Lounges S 12 Direct material Direct labor Overhead Total 45 60 Material Handling 1800,000 Equipment Operation 14970,000 Quality ControlSetups Total Costs $6000 180000 $ $100000 630,000 Umbrellas 300,000 600 1,200,000 600,000 Gazebos 30,000 1,300 3,000,000 1,100,000 Chaise Lounges Number of units Number of setups Pounds of material Number of machine hours 90,000 1,100 1,800,000 1,300,000