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 $26.98 per unit, while product B has been assigned $15.22 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 Drivers | Activity Driver Consumption | ||||
Machine setup | $ | 172,000 | Setup hours | 2,000 | |||
Materials handling | 162,000 | Pounds of materials | 18,000 | ||||
Electric power | 62,000 | Kilowatt-hours | 31,000 | ||||
The following cost information pertains to the production of A and B, just two of Hakara's many products:
A | B | |||||
Number of units produced | 4,000 | 10,000 | ||||
Direct materials cost | $ | 23,000 | $ | 38,000 | ||
Direct labor cost | $ | 28,000 | $ | 37,000 | ||
Number of setup hours | 100 | 200 | ||||
Pounds of materials used | 2,000 | 2,000 | ||||
Kilowatt-hours | 2,000 | 4,000 | ||||
Required:
1. Use activity-based costing to determine a unit cost for each product. (Round your final answers to 2 decimal places.)
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