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 $28.26 per unit, while product B has been assigned $11.09 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 | $ | 128,000 | Setup hours | 2,000 | |||
Materials handling | 84,000 | Pounds of materials | 14,000 | ||||
Electric power | 33,000 | Kilowatt-hours | 33,000 | ||||
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 | $ | 36,000 | $ | 25,000 | ||
Direct labor cost | $ | 34,000 | $ | 36,000 | ||
Number of setup hours | 100 | 200 | ||||
Pounds of materials used | 1,000 | 1,000 | ||||
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.)
Cost per Unit for:
Product A.
Product B.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started