Question
In: Accounting
Using the ABC system, what percentage of Machine Setups cost is assigned to Product Y and Product Z?
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 | ||
| Activity Measure | Product Y | Product Z | ||||
| Machining | 8,300 | 1,700 | ||||
| Number of setups | 50 | 180 | ||||
| Number of products | 1 | 1 | ||||
| Direct labor-hours | 9,500 | 5,500 | ||||
13. Using the ABC system, what percentage of Machine Setups cost is assigned to Product Y and Product Z?
Solutions
Expert Solution
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 %
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