Catena's Marketing Company has the following adjusted trial balance at the end of the current year. Cash dividends of $640 were declared at the end of the year, and 630 additional shares of common stock ($0.10 par value per share) were issued at the end of the year for $2,520 in cash (for a total at the end of the year of 800 shares). These effects are included below: 130 Catena's Marketing Company Adjusted Trial Balance End of the Current Year Debit Credit Cash $ 1,550 Accounts receivable 2,240 Interest receivable Prepaid insurance 1,640 Long-term notes receivable 2,820 Equipment 15,100 Accumulated depreciation $ 2,940 Accounts payable 2,240 Dividends payable 640 Accrued expenses payable 3,800 Income taxes payable 2,520 Unearned rent revenue 320 Common Stock (800 shares) 80 Additional paid-in capital 3,500 Retained earnings 2,330 Sales revenue 37, 350 Interest revenue 150 Rent revenue 600 Wages expense 18,100 Depreciation expense 1,789 Utilities expense 340 Insurance expense 750 Rent expense 9,300 Income tax expense 2,720 Total $ 56,470 $ 56,470

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?