Hakara Company has been using direct labor costs as the basis for assigning overhead to its...

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 $24.08 per unit while product B has been assigned $11.37 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		$ 396,000	Setup hours	4,000
Materials handling		120,000	Pounds of materials	12,000
Electric power		38,000	Kilowatt-hours	38,000

The following cost information pertains to the production of A and B, just two of its many products:

	A		B
Number of units produced		5,000		10,000
Direct materials cost	$	25,000	$	34,000
Direct labor cost	$	33,000	$	28,000
Number of setup hours		100		100
Pounds of materials used		2,000		1,000
Kilowatt-hours		2,000		2,000

1. Use activity-based costing to determine a unit cost for each product. (Round your final answers to 2 decimal places.)

2. Comment on management’s belief that the ABC system will generate an overhead allocation that is more accurate than the volume-based system currently in use.

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ekkarill92 answered 1 year ago

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