Question

Greenwood Company manufactures two products—15,000 units of Product Y and 7,000 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:

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

Activity cost pool	activity measure	estimated overhead cost	expected activity
Machining	machine hours	216700	11000
machine setups	number of setups	79900	170
production design	number of products	81000	2
general factory	direct labor hours	247000	10000
Activity measure	product Y	product Z
machining	67000	4300
number of setups	60	110
number of products	1	1
direct labor hours	7700	2300

Answer 1

The correct answer is :

Product Y = 35.29% as $ 28,200 is assigned

Product Z = 64.71% as $ 51,700 is assigned

Percentage of Cost Allocated of Machine Setup = Cost Allocated / Total Cost
		Cost Allocated	Total Cost	Percentage
	product Y	28,200.00	79,900.00	35.29 %
	product Z	51,700.00	79,900.00	64.71 %

Note :

1. Activity Rate

Activity cost pool	activity measure	estimated overhead cost	expected activity	Activity Rate ( Estimated Overhead Cost / Expected Activity)
Machining	machine hours	2,16,700	11,000	20
machine setups	number of setups	79,900	170	470
production design	number of products	81,000	2	40,500
general factory	direct labor hours	2,47,000	10,000	25

2.

Cost Allocated of Machine Setup =  Activity Rate * Number of Setups

Activity measure	product Y	product Z	Activity Rate
number of setups	60	110	470

product Y	60 * 470
	28,200
product Z	110 * 470
	51,700