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                  7,300                 2,700

Number of setups          50                  180

Number of products         1                   1

Direct labor-hours        9,500              5,500

1.

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

Per DLH 2.) Using the plantwide overhead rate, how much manufacturing overhead cost is allocated to Product Y and Product Z? (Round your intermediate calculations to 2 decimal places and final answers to the nearest dollar amount.) ​Manfacturing Product Y?    Product Z? 3.) What is the activity rate for the Machining activity cost pool? (Round your answer to 2 decimal places.)                          Per MH? 4.) What is the activity rate for the Machine Setups activity cost pool? (Round your answer to 2 decimal places.)   Per setup?

Answer 1

1. Plantwide overhead rate = Total overhead expense / Direct labour hour

                                           = 791400 / (9500+5500)

                                          = 52.76 $ per hour

2. Allocation of manufacturing overhead to product Y and Z

            

Product	Allocation rate	Direct labour hour	Overhead allocated
Y	52.76 $	9500 Hr	501220 $
Z	52.76 $	5500 Hr	290180 $

3 Calculation of activity rate -

     

Activity	Activity measure	Overhead cost $	Expected Activity	OH rate $
Machining	Machine hour	203000	10000 Hr.	20.3
Setups	no of setups	121900	230 No.	530
Product design	no of products	87000	2 product	43500
G factory labour hours	direct labour hour	379500	15000 Hours	25.3

.

Activity rate for the Machining activity cost pool = 20.3 $ per machine hour

4. Activity rate for the Machine Setups activity cost pool = 530 $ per setup

    This information are taken from table calculated in part 3.

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Note - Answer is made specific to the question. Allocation of Overhead to the product Y & Z using Activity based costing is not performed because it was not asked in any of the part