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
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 $10.80 per unit while product B has been assigned $3.60 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 $ 360,000 Setup hours 4,000 Materials handling 100,000 Pounds of materials 20,000 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 $ 42,000 $ 54,000 Direct labor cost $ 24,000 $ 40,000 Number of setup hours 400 200 Pounds of materials used 1,000 3,000 Kilowatt-hours 2,000 4,000
Required: 1. Use activity-based costing to determine a unit cost for each product. (Round your answers to 2 decimal places.)
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