# 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 \$27.90 per unit, while product B has been assigned \$11.78 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 \$258,000 Setup hours 96,000 Pounds of materials 30,000 Kilowatt-hours Activity Driver Consumption 3,000 12,000 30,000 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 A 4,000 10,000 \$23,000 \$28,000 \$40,000 \$32,000 100 200 1,000 1,000 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 Product A Product B

 Calculation of overhead costs assigned Product A Product B Cost Pool Costs Driver Consumption Activity Rate Driver Consumed Overhead Allocated Driver Consumed Overhead Allocated Machine Setup 258,000 3,000 86 100 8,600 200 17,200 Materials handling 96,000 12,000 8 1,000 8,000 1,000 8,000 Electric Power 30,000 30,000 1 2,000 2,000 4,000 4,000 Total 18,600 29,200 Calculation of Unit cost Product A Product B Direct Material cost 23000 28000 Direct Labor Cost 40000 32000 Overhead cost 18600 29200 Total cost 81600 89200 Number of units 4000 10000 Unit Cost 20.4 8.92

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