Question

Hakara Company has been using direct labor costs as the basis for assigning overhead to its many products. Under th allocation system, product A has been assigned overhead of $21.86 per unit, while product B has been assigned $13.35 per unit. Management feels that an ABC system will prov and has collected the following cost pool and cost driver information: ide a more accurate allocation of the overhead costs Ac tivity Driver Consumption 4,000 14,000 36, 000 Activity Costs Cost Drivers Cost Pools Machine setup Materials handling Electric power $284,000 Setup hours 70,000 Pounds of materials 72,000 Kilowatt-hours g 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 10,000 $24,000 $34,000 $32,000 $35,000 200 2,000 2,000 2,000 4,000 100 Required 1. Use activity-based costing to determine a unit cost for each product. (Round your final answers to 2 decimal pl Cost per Unit Product A Product B

Answer 1

Answer:

	Cost per unit
Product -A	15.42
Product -B	10.12

Working note for the above answer is as under:

Cost Pool	Activity cost$	Cost Driver	Driver consumption	Activity rate
	A		B	C=A/B
Machine set up	284000	Set up Hrs	4000	71
Materials handling	70,000	Pounds of material	14000	5
Electric Power	72,000	Kilowatt Hrs	36000	2

Overhead allocation to A &B		A		B
Cost Driver	Activity rate	Driver cosumption	OH amount allocated	Driver cosumption	OH amount allocated
	A	B	C=A*B	D	E=A*D
Set up Hrs	71	100	7100	200	14200
Pounds of material	5	2000	10000	2000	10000
Kilowatt Hrs	2	2000	4000	4000	8000
Total			21100		32200

Details	Product A	Product B
No Of units produced (A)	5,000	10,000
Cost Details
Direct Materials cost(B)	24000	34000
Direct Labor cost ©	32000	35000
Manufacturing overhead allocated   (D)	21100	32200
Total Cost(E=B+C+D)	77100	101200
Unit Cost =(E/A)	15.42	10.12