Question

Hickory Company manufactures two products—14,000 units of Product Y and 6,000 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 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 $ 198,000 10,000 MHs Machine setups Number of setups $ 86,400 180 setups Production design Number of products $ 82,000 2 products General factory Direct labor-hours $ 248,000 12,000 DLHs Activity Measure Product Y Product Z Machine-hours 6,800 3,200 Number of setups 50 130 Number of products 1 1 Direct labor-hours 7,800 4,200

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? (Round your answer to 2 decimal places.)

7. Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Y? (Do not round intermediate calculations and round your final answer to the nearest dollar amount.)

8. Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Z? (Do not round intermediate calculations and round your final answer to the nearest dollar amount.)

Answer 1

Solution 5 and 6:

Computation of Activity rates
Activity cost pool	Overhead costs	Activity measure		Activity Rate
Machining	$1,98,000	10000	Machine hours	$19.80
Machine setups	$86,400	180	setups	$480.00
Product Design	$82,000	2	Products	$41,000.00
General factory	$2,48,000	12000	DLHs	$20.67

activity rate for the Product Design activity cost pool = $41000 per product

activity rate for the General Factory activity cost pool = $20.67

Solution 7:

Computation of Manufacturing Overhead assigned to Product Y
		Product Y
Activity	Activity Rate	Activity measure	Overhead Allocated
Machining	$19.80	6800	$1,34,640
Machine setups	$480.00	50	$24,000
Product Design	$41,000.00	1	$41,000
General factory	$20.67	7800	$1,61,200
Total			$3,60,840

Solution 8:

Computation of Manufacturing Overhead assigned to Product Z
		Product Z
Activity	Activity Rate	Activity measure	Overhead Allocated
Machining	$19.80	3200	$63,360
Machine setups	$480.00	130	$62,400
Product Design	$41,000.00	1	$41,000
General factory	$20.67	4200	$86,800
Total			$2,53,560