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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 2 years ago
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