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 $28.26 per unit, while product B has been assigned $11.09 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	$	128,000		Setup hours		2,000
Materials handling		84,000		Pounds of materials		14,000
Electric power		33,000		Kilowatt-hours		33,000

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	$	36,000		$	25,000
Direct labor cost	$	34,000		$	36,000
Number of setup hours		100			200
Pounds of materials used		1,000			1,000
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.)

Cost per Unit for:

Product A.

Product B.

Answer 1

Answer

• Requirement 1 with working

	Product A	Product B
Direct Material Cost	$36,000	$25,000
Direct Labor Cost	$34,000	$36,000
Machine setup cost	$6,400	$12,800
Material handling cost	$6,000	$6,000
Electric power cost	$2,000	$4,000
Total Cost	$84,400	$83,800
Total Units	4000	10000
Unit Cost	$21.10	$8.38

--Working

	Product A	Product B
Direct Material Cost	36000	25000
Direct Labor Cost	34000	36000
Machine setup cost	=(128000/2000)*100	=(128000/2000)*200
Material handling cost	=(84000/14000)*1000	=(84000/14000)*1000
Electric power cost	=(33000/33000)*2000	=(33000/33000)*4000
Total Cost	$84,400	$83,800
Total Units	4000	10000
Unit Cost	$21.10 ($84400 / 4000)	$8.38 ($83800 / 1000)