Hakara Company - Required A, B, C, D, E

Hakara Company uses direct labor cost as the allocation basis for allocating factory overhead to its products. Of late, the management of Hakara is feeling that switching over to an ABC system may improve the accuracy of product costs. The management has divided the total budgeted factory overhead cost into three activity cost pools for this purpose as given below: Cost pools Machine setup Materials handling Electric power Activity costs $42,000 $78,000 $20,000 Cost allocation driver Setup hours Pounds of materials Kilowatt-hours Cost allocation driver volume 4,000 20,000 40,000 Budgeted Direct labor cost for the year for all products = $125,000 The following cost and activity information pertains to two of the many products (Alpha and Beta) manufactured by Hakara: Number of units budgeted to be produced Budgeted DM cost for the product Budgeted DL cost for the product Number of setup hours budgeted Pounds of materials budgeted Kilowatt-hours budgeted Alpha Beta 4,000 20,000 $42,000 $54,000 $24,000 $40,000 200 240 1,000 3,000 2,000 4,000 Required: a) What is the budgeted pre-determined overhead rate under the current costing system? b) Find the budgeted unit cost of production for Alpha and Beta under the current costing system c) Find the budgeted unit cost of production for Alpha and Beta under the proposed ABC system. d) Calculate the cost distortion introduced by the current costing system for both Alpha and Beta. Express your answer on a per unit basis as well as in percentage terms and in total dollar terms for the entire product line of Alpha and Beta. e) Is Beta under/over costed under traditional system? Give one reason for why it is under/over costed