Hakara Company has been using direct labor costs as the basis for assigning overhead to its many products. Under this allocationsystem, product A has been assigned overhead of $26.87 per unit, while product B has been assigned $7.62 per unit. Managementfeels that an ABC system will provide a more accurate allocation of the overhead costs and has collected the following cost pool andcost driver information:Cost PoolsActivity Costs$ 415,000120,00044,000The following cost information pertains to the production of A and B, just two of Hakara's many products:Machine setupMaterials handlingElectric powerNumber of units producedDirect materials costDirect labor costNumber of setup hoursPounds of materials usedKilowatt-hoursProduct AProduct BA5,000$ 22,000$ 39,000Cost per UnitCost DriversSetup hoursPounds of materialsKilowatt-hours2002,0004,000B20,000$ 26,000$ 37,000Activity DriverConsumption5,00015,00022,0002002,0004,000Required:1. Use activity-based costing to determine a unit cost for each product. (Round your final answers to 2 decimal places.)

An activity based costing method is the method by which the costs of each activity are distributed…

Answered: 1. Use activity-based costing to…

1. Use activity-based costing to determine a unit cost for each product. (Round your final answers to 2 decimal places.) Product A Product B Cost per Unit

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Manufacturing Costs

Manufacturing cost is the total cost of procuring or producing a product. In other words, the manufacturing cost is the cost that an individual or business owner undertakes for the manufacturing of goods.

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 $26.87 per unit, while product B has been assigned $7.62 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
$ 415,000
120,000
44,000
The following cost information pertains to the production of A and B, just two of Hakara's many products:
Machine setup
Materials handling
Electric power
Number of units produced
Direct materials cost
Direct labor cost
Number of setup hours
Pounds of materials used
Kilowatt-hours
Product A
Product B
A
5,000
$ 22,000
$ 39,000
Cost per Unit
Cost Drivers
Setup hours
Pounds of materials
Kilowatt-hours
200
2,000
4,000
B
20,000
$ 26,000
$ 37,000
Activity Driver
Consumption
5,000
15,000
22,000
200
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.)

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