Question

Hickory Company manufactures two products—13,000 units of Product Y and 5,000 units of Product Z. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates all $745,200 of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products Y and Z:

Activity Cost Pool	Activity Measure	Estimated Overhead Cost		Expected Activity
Machining	Machine-hours	$	242,400	12,000	MHs
Machine setups	Number of setups	$	114,400	220	setups
Product design	Number of products	$	86,000	2	products
General factory	Direct labor-hours	$	302,400	14,400	DLHs

Activity Measure	Product Y	Product Z
Machine-hours	7,200	4,800
Number of setups	40	180
Number of products	1	1
Direct labor-hours	8,200	6,200

1. What is the company’s plantwide overhead rate?
2. Using the plantwide overhead rate, how much manufacturing overhead cost is allocated to Product Y and Product Z?
3. What is the activity rate for the Machining activity cost pool?
4. What is the activity rate for the Machine Setups activity cost pool?
5. What is the activity rate for the Product Design activity cost pool?
6. What is the activity rate for the General Factory activity cost pool?
9. Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Y?
10.Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Z?
11. Using the plantwide overhead rate, what percentage of the total overhead cost is allocated to Product Y and Product Z?
12. Using the ABC system, what percentage of the Machining costs is assigned to Product Y and Product Z?
13. Using the ABC system, what percentage of Machine Setups cost is assigned to Product Y and Product Z?
14. Using the ABC system, what percentage of the Product Design cost is assigned to Product Y and Product Z?
15. Using the ABC system, what percentage of the General Factory cost is assigned to Product Y and Product Z?

Answer 1

Ans.1	Plant wide overhead rate =   Estimated overhead / Estimated direct labor hours
		$745,200 / 14,400
		$51.75	per D L H
Ans. 2		Product Y	Product Z
	Direct labor hours (a)	8,200	6200
	Plant wide overhead rate (b)	$51.75	$51.75
	Allocated overhead cost (a*b)	$424,350	$320,850
Ans. 3	Activity rate for Machining = Estimated Machining overhead cost / Machine hours
		$242,400 / 12,000
		$20.20	per machine hour
Ans. 4	Activity rate for Machine setups = Estimated Machine setup overhead cost / Setups
		$114,400 / 220
		$520.00	per setup
Ans. 5	Activity rate for Product design = Estimated Product design overhead cost / Products
		$86,000 / 2
		$43,000.00	products
Ans. 6	Activity rate for General factory = Estimated General factory overhead cost / Direct labor hours
		$302,400 / 14,400
		$21.00	per direct labor hour

Ans. 9	Activity cost pool	Activity of Product Y (a)	Activity rate (b)	Allocated overhead (a*b)
	Machining	7200	$20.20	$145,440
	Machine setups	40	$520	$20,800
	Product design	1	$43,000	$43,000
	General factory	8200	$21	$172,200
	Overhead cost allocated to Product Y			$381,440
Ans. 10	Activity cost pool	Activity of Product Z	Activity rate	Allocated overhead
	Machining	4800	$20.20	$96,960
	Machine setups	180	$520	$93,600
	Product design	1	$43,000	$43,000
	General factory	6200	$21	$130,200
	Overhead cost allocated to Product Z			$363,760
Ans. 11		Product Y	Product Z
	Direct labor hours (a)	8,200	6200
	Plant wide overhead rate (b)	$51.75	$51.75
	Allocated overhead cost (a*b)	$424,350	$320,850
	Total overhead cost	$745,200	$745,200
	Percentage of allocation	56.94%	43.06%
	Percentage of allocation =   Allocated overhead cost / Total overhead cost * 100
Ans. 12		Product Y	Product Z
	Machine hours (a)	7200	4800
	Activity rate per machine hour (b)	$20.20	$20.20
	Allocated machining cost (a*b)	$145,440	$96,960
	Total Machining cost	$242,400	$242,400
	Percentage of allocation	60.00%	40.00%
	Percentage of allocation    =    Allocated Machining cost / Total machining cost * 100
Ans. 13		Product Y	Product Z
	Number of setups (a)	40	180
	Activity rate per setup (b)	$520.00	$520.00
	Allocated machine setup cost (a*b)	$20,800	$93,600
	Total Machine setup cost	$114,400	$114,400
	Percentage of allocation	18.18%	81.82%
	Percentage of allocation    =    Allocated Machine setup cost / Total machine setup cost * 100
Ans. 14		Product Y	Product Z
	Number of products (a)	1	1
	Activity rate per product (b)	$43,000.00	$43,000.00
	Allocated Product design cost (a*b)	$43,000	$43,000
	Total Product design cost	$86,000	$86,000
	Percentage of allocation	50.00%	50.00%
	Percentage of allocation    =    Allocated Product design cost / Total Product design cost * 100
Ans. 15		Product Y	Product Z
	Direct labor hours (a)	8200	6200
	Activity rate per direct labor hour (b)	$21.00	$21.00
	Allocated General factory cost (a*b)	$172,200	$130,200
	Total General factory cost	$302,400	$302,400
	Percentage of allocation	56.94%	43.06%
	Percentage of allocation    =    Allocated General factory cost / Total General factory cost * 100