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 $30.25 per unit, while product B has been assigned $6.97 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: points eBook Cost Pools Machine setup Materials handling Electric power Activity Costs $310,000 140,000 34,000 Cost Drivers Setup hours Pounds of materials Kilowatt-hours Activity Driver Consumption 5,000 20,000 34,000 Print References 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 A B 4,000 20,000 $30,000 $26,000 $41,000 $25,000 200 200 1,000 1,000 4,000 4,000 Required: 1. Use activity-based costing to determine a unit cost for each product. (Round your final answers to 2 decimal places.) Cost per Unit Product A Product B

Answer 1

	Cost per Unit
Product A	$         23.60
Product B	$           3.72
Explanation
Cost Pools	Activity Costs	Cost Driver Units	Overhead Rate
Machine setup	$ 310,000.00	5,000.00	$          62.00
Materials handling	$ 140,000.00	20,000.00	$            7.00
Electric power	$   34,000.00	34,000.00	$            1.00
Cost Assignment:
		A		B
Direct materials		$        30,000.00		$ 26,000.00
Direct labor		$        41,000.00		$ 25,000.00
Overhead:
Machine setup	$62 x 200	$        12,400.00	$62 x 200	$ 12,400.00
Materials handling	$7 x 1000	$         7,000.00	$7 x 1000	$ 7,000.00
Electric power	$1 x 4000	$         4,000.00	$1 x 4000	$ 4,000.00
Total product cost		$        94,400.00		$ 74,400.00
Units produced		4,000.00		20,000.00
Cost per unit		$              23.60		$        3.72