Question

Hickory Company manufactures two products—15,000 units of Product Y and 7,000 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 $729,600 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	$	227,700	11,000	MHs
Machine setups	Number of setups	$	153,900	270	setups
Product design	Number of products	$	91,000	2	products
General factory	Direct labor-hours	$	257,000	13,200	DLHs

Activity Measure	Product Y	Product Z
Machine-hours	7,700	3,300
Number of setups	60	210
Number of products	1	1
Direct labor-hours	8,700	4,500

Required :

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

9) Overhead assigned to product Y under ABC

	Product Y
Machining	7700*20.7 = 159390
Machine setups	570*60 = 34200
Product design	45500
General factory	257000/13200*8700 = 169836
Total overhead	408476

10) Overhead assigned to product Z under ABC

	Product Y
Machining	3300*20.7 = 68310
Machine setups	570*210 = 119700
Product design	45500
General factory	257000/13200*4500 = 87614
Total overhead	321124

11) Percentage

	Product y	Product Z
Direct labor hour	8700/13200 = 65.91%	4500/13200 = 34.09%

12) Percentage

	Product Y	Product Z
Machine hour	7700/11000 = 70%	30%

13) Percentage

	Product Y	Product Z
Machine setup	60/2\0 = 22.22%	210/270 = 77.78%

14) Percentage

	Product Y	Product Z
Product design	1/2 = 50%	50%

15) Percentage

	Product y	Product Z
General factory	8700/13200 = 65.91%	4500/13200 = 34.09%