Using the ABC system, what percentage of Machine Setups cost is assigned to Product Y and Product Z?

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The 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	$	203,000		10,000	MHs
Machine setups	Number of setups	$	121,900		230	setups
Production design	Number of products	$	87,000		2	products
General factory	Direct labor-hours	$	379,500		15,000	DLHs

13. Using the ABC system, what percentage of Machine Setups cost is assigned to Product Y and Product Z?

Machine Setup:

Overhead rate per setup = Estimated overhead cost / Estimated activity
Overhead rate per setup = $121900 / 230
Overhead rate per setup = $530

Product Y:

Machine setups cost assigned = Overhead rate per setup * Estimated activity
Machine setups cost assigned = $530 * 50
Machine setups cost assigned = $ 26500

Percentage of machine setups cost = Machine setups cost assigned / Estimated machine setups cost
Percentage of machine setups cost = $ 26500 / $ 121900
Percentage of machine setups cost = 0.2173 or 21.73%

Product Z:

Machine setups cost assigned = Overhead rate per setup * Estimated activity
Machine setups cost assigned = $530 * 180
Machine setups cost assigned = $ 95400

Percentage of machine setups cost = Machine setups cost assigned / Estimated machine setups cost
Percentage of machine setups cost = $ 95400 / $ 121900
Percentage of machine setups cost = 0.7826 or 78.26 %

ekkarill92 answered 2 years ago

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Activity Measure

Number of setups

Number of products

Direct labor-hours

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