Hakara Company has been using direct labor costs as the basis for assigning over
ID: 2522398 • Letter: H
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 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.)
Explanation / Answer
STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL Activity Total Expected Activity ACTIVITY COST POOL Measures Overheads Activity Rate machine Setup Setups 360,000 4,000 90 per setup material handling Pounds 100,000 20,000 5 per pound Electric Power KW hours 40,000 40,000 1 per KW hour OH assigned: Product A Product B Activity Rate Activity OH cost Activity OH cost machine Setup 90 400 36000 200 18000 material handling 5 1000 5000 3000 15000 Electric Power 1 2000 2000 4000 4000 Total Overheads 43000 37000 UNIT PRODUCT COST: Product A Product B Direct material 42000 54000 Direct labour 24000 40000 Overheads assigned 43000 37000 Total Cost 109,000 131,000 Divide Number of f units 4000 20000 Unit Product cost 27.25 6.55
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