Question

Exercise 5-28 Activity-Based Costing [LO 5-2,5-3] 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 $22.86 per unit, while product B has been assigned $7.39 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 Machine setup Materials handling Electric power Activity Costs Cost Drivers $516,000 Setup hours 105,000 Pounds of materials 26,000 Kilowatt-hours Activity Driver Consumption 6,000 21,000 26,000 The following cost information pertains to the production of A and B just two of Hakara's many products: Number of units produced Direct materials cost Direct labor cost Number of setup hours Pounds of materials used Kilowatt-hours 5,000 20,000 $31,000 $29,000 $30,000 $40,000 200 100 1,000 2,000 4,000 2,000

Answer 1

Solutions dipu - a) cost pools Activity costs ($) cost briver units overhead Rate (8) machine setup 516000 6000 86 105000 | 21,000 5 materials Handling Electric power 26000 26000

cost per unit calculation of particulars Direct material B (0) 29,000 31000 Direct labour 30,000 40,000 overhead: - Machine detup 17,200 86oo (200 X 86 (100x86) -materials Handling 5,000 10,000 ( 1,000x 5) (3,000x5) 4000 2000 - power (4,000 X 1) (3,000x1) Total product cost 87200 89600 units produced Sooo 20,000 cost per unit 17:44 4:48 (87,200) /89,60o) (20,000) cost per unit product A 17.4.14 | Ş000 product B 4.48

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