Question: Activity-Based Costing Hakara Company has been using direct labor costs as the basis for assign- ing overhead to its many products. Under this allocation system
Activity-Based Costing Hakara Company has been using direct labor costs as the basis for assign- ing overhead to its many products. Under this allocation system product A has been assigned over- head 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 fol- lowing cost pool and cost driver information:
Required
Cost Pools
Machine setup Materials handling Electric power
Activity Costs
$360,000 100,000 40,000
Cost Drivers
Setup hours Pounds of materials Kilowatt-hours
Driver Consumption
4,000 20,000 40,000
Chapter 5 Activity-Based Costing and Customer Pro tability Analysis 155 The following cost information pertains to the production of A and B, just two of its many products:
AB
Number of units produced Direct materials cost Direct labor cost Number of setup hours Pounds of materials used Kilowatt-hours 2,000
20,000 $54,000 $40,000
200 3,000 4,000
1. Use activity-based costing to determine a unit cost for each product. 2. CommentonmanagementsbeliefthattheABCsystemwillgenerateanoverheadallocationthatismore
accurate than the volume-based system currently in use.
Activity-Based Costing Hakara Company has been using direct labor costs as the basis for assign- ing overhead to its many products. Under this allocation system product A has been assigned over- head 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 fol- lowing cost pool and cost driver information:
Required
Cost Pools
Machine setup Materials handling Electric power
Activity Costs
$360,000 100,000 40,000
Cost Drivers
Setup hours Pounds of materials Kilowatt-hours
Driver Consumption
4,000 20,000 40,000
Chapter 5 Activity-Based Costing and Customer Pro tability Analysis 155 The following cost information pertains to the production of A and B, just two of its many products:
AB
Number of units produced Direct materials cost Direct labor cost Number of setup hours Pounds of materials used Kilowatt-hours 2,000
20,000 $54,000 $40,000
200 3,000 4,000
1. Use activity-based costing to determine a unit cost for each product. 2. CommentonmanagementsbeliefthattheABCsystemwillgenerateanoverheadallocationthatismore
accurate than the volume-based system currently in use.
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