Question

14-4

The 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

14. Using the ABC system, what percentage of the Product Design cost is assigned to Product Y and Product Z? (Round your answers to 2 decimal places.)

Answer 1

Particulars	Product Y	Product Z
Product design cost	50 %	50%

Product design cost is assigned based on Number of products.

Product design costs is allocated equally among 2 products as expected activity driver is 2 products

Product design costs is allocated equally among both the products in equal proportions for both Product Y and Product Z

Activity	Activity cost	Activity driver	Activity driver rate
Product design cost	$ 87,000	2 (Number of products)	$ 43,500 ( $ 87,000 / 2)

In the above case Product design cost assigned to Product Y shall be $ 43,500 ($ 87,000 *50%) and Product design cost assigned to Product Z shall be $ 43,500 ($ 87,000 *50%) based on activity driver.