Question

1. XYZ Sporting Corp. manufactures two types of products – Footwear and Apparel. The following table shows the estimated annual overhead cost of XYZ for the year of 2019 -

Production department:
Indirect factory wages	$700,000
Factory equipment depreciation	$250,000
Factory utilities	$130,000
Factory building lease	$80,000	$1,160,000
General Administrative Department:
Administrative wages & salaries	$500,000
Office equipment depreciation	$10,000
Administrative building lease	$60,000	$570,000
Marketing department:
Marketing wages & salaries	$350,000
Selling expenses	$70,000	$420,000
Total overhead cost		$2,150,000

XYZ usually deploys a plantwide overhead rate based on machine hours. But the management of the company decided to implement an activity-based costing (ABC) system to allocate all $2,150,000 of its overhead costs to three cost pools –

Activity cost pool	Activity measures	Footwear	Apparel
Customer orders	Number of customer orders	600 Orders	500 Orders
Product design	Number of product designs	100 Designs	400 Designs
Order size	Machine-hours	15,500 Machine Hours	9,500 Machine Hours

The following table shows the distribution of resource consumption across the activity cost pools

	Customer order	Product design	Order size
Production Department:
Indirect factory wages	20%	40%	40%
Factory equipment depreciation	20%	0%	80%
Factory utilities	0%	10%	90%
Factory building lease	0%	0%	100%
General Administrative Department:
Administrative wages & salaries	15%	5%	80%
Office equipment depreciation	30%	0%	70%
Administrative building lease	0%	0%	100%
Marketing Department:
Marketing wages & salaries	22%	8%	70%
Selling expenses	10%	0%	90%

1. Calculate the company’s plantwide overhead rate. Using the plantwide overhead rate,how much overhead cost is allocated to Apparel and how much is allocated to Footwear?
2. Calculate the activity rates of Customer Orders, Product Design, and Order Size. )
3. Using the ABC system, how much overhead cost is allocated to Apparel and how much is allocated to Footwear?

Answer 1