Hakara Company has been using direct labor costs as the basis for assigning over
ID: 2420108 • Letter: H
Question
Hakara Company has been using direct labor costs as the basis for assigning overhead to its many products. Under this allocation system product A has been assigned overhead of $26.87 per unit while product B has been assigned $7.62 per unit. Management feels that an ABC system will provide a more accurate allocation of the overhead costs and has collected the following cost pool and cost driver information: The following cost information pertains to the production of A and B, just two of its many products: Use activity-based costing to determine a unit cost for each product.Explanation / Answer
Hakara Company ABC details Cost Pool Activity cost$ Cost Driver Driver cosumption Activity rate Machine set up 415,000 Set up Hrs 5,000 83.00 Materials handling 120,000 Pounds of material 15,000 8.00 Electric Power 44,000 Kilowatt Hrs 22,000 2.00 Overhead allocation to A &B A B Cost Driver Activity rate Driver cosumption OH amount allocated Driver cosumption OH amount allocated Set up Hrs 83 200 16,600 200 16,600 Pounds of material 8 2,000 16,000 2,000 16,000 Kilowatt Hrs 2 4,000 8,000 4,000 8,000 Total 40,600 40,600 Unit Cost of Product Using ABC Details Details Product A Product B a No Of units produced 5,000 20,000 Cost Details Direct Materials cost 22,000 26,000 Direct Labor cost 39,000 37,000 Manufacturing overhead allocated 40,600 40,600 b Total Cost 101,600 103,600 Unit Cost =b/a= $ 20.32 $ 5.18
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