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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 Drivers Activity 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 Hakara's many products:
A B
Number of units produced 4,00020,000
Direct materials cost $ 42,000 $ 54,000
Direct labor cost $ 24,000 $ 40,000
Number of setup hours 400200
Pounds of materials used 1,0003,000
Kilowatt-hours 2,0004,000

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