Question

35-38

Hickory Company manufactures two products—13,000 units of Product Y and 5,000 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 $829,500 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	$	246,000	12,000	MHs
Machine setups	Number of setups	$	137,500	250	setups
Product design	Number of products	$	89,000	2	products
General factory	Direct labor-hours	$	357,000	14,400	DLHs

Activity Measure	Product Y	Product Z
Machine-hours	7,500	4,500
Number of setups	40	210
Number of products	1	1
Direct labor-hours	8,500	5,900

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?

7. Which of the four activities is a batch-level activity?

• Machine setups activity

• Machining activity

• Product design activity

• General factory activity

• 8. Which of the four activities is a product-level activity?

• Product design activity

• Machining activity

• Machine setups activity

• General factory activity

Answer 1

(5) activity rate for the Product Design activity cost pool

Activity cost pool	Product design
Activity Measure	Number of product
Estimated overhead cost (a)	$ 89000
Expected Activity (b)	2 product
activity rate for the Product Design activity cost pool (a)/(b)	$ 44500 per product

(6)  activity rate for the General Factory activity cost pool

Activity cost pool	General Factory
Activity Measure	Direct labor hour
Estimated overhead cost (a)	$ 357000
Expected Activity (b)	14400 Direct labor hour
activity rate for the Product Design activity cost pool (a)/(b)	$ 24.79 ( Approx to 2 decimal place)

7. Which of the four activities is a batch-level activity?

Answer - Machine setups activity

Explanation

Batch level activity will apply whenever a batch is produced. Batch level activity will include Machine set up,

Quality testing and purchase order.

8. Which of the four activities is a product-level activity?

Answer : Product design activity

Explanation

Product level activity connected to specific product and it is not related to Batch or unit of product .It will include Design a product ,advertising a product.