Allocations for taxes (LO3). Located in Madras, India, Shah Company manufactures and sells leather garments in India and in Europe. For the most recent year of operations, Shah sold 20,000 garments in...

Allocations for taxes (LO3). Located in Madras, India, Shah Company manufactures and sells leather garments in India and in Europe. For the most recent year of operations, Shah sold 20,000 garments in Europe and 20,000 garments in India. Each garment sold in India consumes 4 hours of labor, while each garment sold in Europe consumes 7 hours of labor. Shah currently allocates fixed manufacturing overhead costs, which amount to $660,000 per year, using the number of garments produced as the allocation basis.

Shah’s income-tax rates in Europe and India are 40% and 30%, respectively. Assume that each jurisdiction (Europe, India) taxes only income reported in that jurisdiction.

Required:

Compute the net savings in taxes paid if Shah were to allocate overhead costs using labor hours rather than garments as the allocation basis.