Question

Greenwood 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

Required:

1. What is the company’s plantwide overhead rate? (Round your answer to 2 decimal places.)

Answer 1

Answer)

Calculation of Plantwide overhead rate

Plantwide overhead rate = Total estimated overheads/ Total estimated direct labor hours

                                              = $ 791,400/ 15,000 direct labor hours

                                               = $ 52.76 per direct labor hour

Therefore plantwide overhead rate is $ 52.76 per direct labor hour.    

Working Note:

Calculation of total estimated overheads:

Total estimated overheads = Estimated machining overheads + Estimated machine setup overheads + Estimated production overheads + Estimated general factory overheads

                                                                     = $ 203,000 + $ 121,900 + $ 87,000 + $ 379,500

                                                                     = $ 791,400