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 $19.92 per unit, while product B has been assigned $11.86 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 $ 284,000 Setup hours 4,000
Materials handling 75,000 Pounds of materials 15,000
Electric power 26,000 Kilowatt-hours 26,000
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 $ 25,000 $ 33,000
Direct labor cost $ 28,000 $ 39,000
Number of setup hours 100 100
Pounds of materials used 1,000 2,000
Kilowatt-hours 2,000 2,000
Required:
1. Use activity-based costing to determine a unit cost for each product.