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 $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.)
Homework Answers
| Working Notes: | |||||||
| Calculation of the Cost Driver Rate | |||||||
| Cost Driver Rate = Activity Cost / Cost Driver | |||||||
| Activity Cost / Cost Driver = | |||||||
| Activity | Cost Driver | Activity Cost | "/" | Cost Driver | " = " To | Cost Driver Rate | |
| Machine Setups | Setup Hours | $ 1,28,000 | "/" | 2,000 | " = " To | $ 64.00 | |
| Material Handling | Pounds of Material | $ 84,000 | "/" | 14,000 | " = " To | $ 6.00 | |
| Electric Power | Kilowatt - Hours | $ 33,000 | "/" | 33,000 | " = " To | $ 1.00 | |
| Total | $ 2,45,000 | ||||||
| Solution : 1 | |||||||
| Calculation of the Unit Cost of Product A | |||||||
| Activity | Activity Used | "X " By | Cost Driver rate | Cost | |||
| Direct Material Cost | $ 36,000 | ||||||
| Direct Labor Cost | $ 34,000 | ||||||
| Overhead Cost: | |||||||
| Setup Hours | 100 | "X " By | $ 64.00 | $ 6,400 | |||
| Pounds of Material | 1,000 | "X " By | $ 6.00 | $ 6,000 | |||
| Kilowatt - Hours | 2,000 | "X " By | $ 1.00 | $ 2,000 | |||
| Total Cost | $ 84,400 | ||||||
| Divide By | "/" By | ||||||
| No. of Units Prodcued | 4,000 | ||||||
| Per Unit Cost of Product A = | $ 21.10 | ||||||
| Answer = Cost Per Unit = $ 21.10 | |||||||
| Solution : 2 | |||||||
| Calculation of the Unit Cost of Product B | |||||||
| Activity | Activity Used | "X " By | Cost Driver rate | Cost | |||
| Direct Material Cost | $ 25,000.00 | ||||||
| Direct Labor Cost | $ 36,000.00 | ||||||
| Overhead Cost: | |||||||
| Setup Hours | 200 | "X " By | $ 64.00 | $ 12,800 | |||
| Pounds of Material | 1,000 | "X " By | $ 6.00 | $ 6,000 | |||
| Kilowatt - Hours | 4,000 | "X " By | $ 1.00 | $ 4,000 | |||
| Total Cost | $ 83,800 | ||||||
| Divide By | "/" By | ||||||
| No. of Units Prodcued | 10,000 | ||||||
| Per Unit Cost of Product A = | $ 8.38 | ||||||
| Answer = Cost Per Unit = $ 8.38 | |||||||
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