Business, 15.02.2021 19:40 oliviastokes

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 $10.80 per unit, while product B has been assigned $3.60 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 $360,000 Setup hours 4,000
Materials handling 100,000 Pounds of materials 20,000
Electric power 40,000 Kilowatt-hours 40,000

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 20,000
Direct materials cost $42,000 $54,000
Direct labor cost $24,000 $40,000
Number of setup hours 400 200
Pounds of materials used 1,000 3,000
Kilowatt-hours 2,000 4,000

Required
a. Use activity-based costing to determine a unit cost for each product.
b. Comment on management's belief that the ABC system will generate an overhead allocation that is more accurate than the volume-based system currently in use.

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