Hakara Company has been using direct labor costs as the basis for assigning over

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 $30.25 per unit while product B has been assigned $6.97 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 Cost Pools Activity Costs Cost Driver Driver Consumption Machine setup Materials handling Electric power Setup hours Pounds of materials Kilowatt-hours 5,000 20,000 34,000 $ 310,000 140.000 34.000 The following cost information pertains to the production of A and B, just two of its many products 4,000 Number of units produced Direct materials cost Direct labor cost Number of setup hours Pounds of materials used Kilowatt-hours 20,000 $30,000 $26,000 $41,000 $25,000 200 1,000 4,000 200 1,000 4,000 Required 1. Use activity-based costing to determine a unit cost for each product. (Round your final answers to 2 decimal places.) Cost per Unit ProductA ProductB

Explanation / Answer

Cost pool Activity cost Driver total Activity rate Machine setups 310000 5000 62 Materials handling 140000 20000 7 Electric power 34000 34000 1 Product A Product B Direct materials 30000 26000 Direct labor 41000 25000 Overhead: Machine setups 12400 12400 Materials handling 7000 7000 Electric power 4000 4000 Total cost 94400 74400 Units 4000 20000 Cost per unit 23.6 3.72

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