Hakara Company has been using direct labor costs as the basis for assigning overhead to its many
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 $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:
The following cost information pertains to the production of A and B, just two of its many products:
Required
1. Use activity-based costing to determine a unit cost for each product.
2. 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.
Step by Step Answer:
Cost Management A Strategic Emphasis
ISBN: 978-0078025532
6th edition
Authors: Edward Blocher, David Stout, Paul Juras, Gary Cokins