In: Accounting
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.)
Answer
Deluxe | Standard | |
Per Unit Costs | $ 20.40 | $ 11.82 |
Calculations:
Deluxe | Standard | |
Direct material | $ 23,000.00 | $ 38,000.00 |
Direct Labor | $ 28,000.00 | $ 37,000.00 |
Overheads | $ 30,600.00 | $ 43,200.00 |
Total | $ 81,600.00 | $ 118,200.00 |
Units | $ 4,000.00 | $ 10,000.00 |
Per Unit Costs | $ 20.40 | $ 11.82 |
Costs | Total activity | Activity Rate | Actual Usage - A | Actual Usage - B | Overheads - A | Overheads - B | |
Machine setup | $ 172,000 | 2,000 | $ 86.00 | 100 | 200 | $ 8,600 | $ 17,200 |
Materials handling | $ 162,000 | 18,000 | $ 9.00 | 2,000 | 2,000 | $ 18,000 | $ 18,000 |
Electric power | $ 62,000 | 31,000 | $ 2.00 | 2,000 | 4,000 | $ 4,000 | $ 8,000 |
Total Over heads | $ 30,600 | $ 43,200 |
In case of any doubt, please comment.