Cost Management: A Strategic Emphasis 7th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 17

Activity-Based Costing 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.