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 $31.58 per unit while product B has been assigned $8.69 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	$	198,000		Setup hours	2,000
Materials handling		168,000		Pounds of materials	21,000
Electric power		40,000		Kilowatt-hours	40,000

The following cost information pertains to the production of A and B, just two of its many products:

	A			B
Number of units produced		4,000			20,000
Direct materials cost	$	31,000		$	33,000
Direct labor cost	$	33,000		$	33,000
Number of setup hours		200			200
Pounds of materials used		1,000			2,000
Kilowatt-hours		4,000			4,000

1. Use activity-based costing to determine a unit cost for each product.

2. Comment on Managements belief that the ABC system will generate an overhead allocation that is more accurate than the volume based system currently in use.