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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 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:
Use activity-based costing to determine a unit cost for each product.

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Answer:

Results are below.

Explanation:

First, we need to calculate the activities rates of allocation:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Machine setup= 360,000/4,000= $90 per set up hour

Materials handling= 100,000/20,000= $5 per pound of material

Electric power= 40,000/40,000= $1 per kilowwat hour

Now, we can allocate costs to each product:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

A:

Allocated MOH= 90*400 + 5*1,000 + 1*2,000

Allocated MOH= $43,000

B:

Allocated MOH= 90*200 + 5*3,000 + 1*4,000

Allocated MOH= $37,000

Finally, the total and unitary cost:

A:

Total cost= 42,000 + 24,000 + 43,000

Total cost= $109,000

Unitary cost= 109,000/4,000

Unitary cost= $2.73

B:

Total cost= 54,000 + 40,000 + 37,000

Total cost= $131,000

Unitary cost= 131,000/20,000

Unitary cost= $6.55

The Activity-based costing (ABC) costing system is based on activities, overseen by any event, task unit, or targeted activity

What do you mean by Acitivity based costing?

Activity-based costing (ABC) is a way of providing assigning overhead and indirect costs such as salaries and services — to products and services.

Predetermined manufacturing overhead rate is equal to total estimated overhead costs for the period/ total amount of allocation base

[tex]\rm\,Machine \;setup= \dfrac{360,000}{4,000}= \$90 \; per \;set \;up \;hour\\\\Materials \;handling= \dfrac{100,000}{20,000}= \$5 \;per \;pound \;of \;material\\\\Electric \; power= \dfrac{40,000}{40,000}= \$1 \;per \; kilowatt \;hour[/tex]

We can allocate costs to each product:

Allocated manufacturing overhead is equal to Estimated manufacturing overhead rate multiplied by Actual amount of allocation base.

[tex]\rm\,A: Allocated MOH= 90 \times 400 + 5\times 1,000 + 1\times2,000\\\\Allocated MOH= \$43,000\\\\B: Allocated MOH= 90 \times200 + 5\times3,000 + 1\times4,000\\\\Allocated MOH= \$37,000[/tex]

The total and unitary cost:

[tex]\rm\, A. Total\; cost = 42,000 + 24,000 + 43,000\\\\Total \;cost= \$109,000\\\\Unitary \;cost= \dfrac{109,000}{4,000}\\\\Unitary \;cost= \$2.73\\\\B: Total \;cost= 54,000 + 40,000 + 37,000\\\\Total\; cost= \$131,000\\\\Unitary\; cost= \dfrac{131,000}{20,000}\\\\Unitary\; cost= \$6.55\\\\[/tex]

Thus, Activity based costing (ABC) is used to determine a unit cost for each product A and B.

To learn more about Activity based costing (ABC), refer:

https://brainly.com/question/6654166

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