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 $24.82 per unit, while product B has been assigned $13.58 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 $ 158,000 Setup hours 2,000 Materials handling 112,000 Pounds of materials 16,000 Electric power 25,000 Kilowatt-hours 25,000 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 5,000 10,000 Direct materials cost $ 32,000 $ 41,000 Direct labor cost $ 41,000 $ 38,000 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.)
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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 $24.82 per unit, while product B has been assigned $13.58 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 | $ 158,000 | Setup hours | 2,000 |
| Materials handling | 112,000 | Pounds of materials | 16,000 |
| Electric power | 25,000 | Kilowatt-hours | 25,000 |
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 | 5,000 | 10,000 |
| Direct materials cost | $ 32,000 | $ 41,000 |
| Direct labor cost | $ 41,000 | $ 38,000 |
| 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.)
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