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	$	200,000			10,000	MHs
Machine setups	Number of setups	$	100,000			200	setups
Production design	Number of products	$	84,000			2	products
General factory	Direct labor-hours	$	300,000			12,000	DLHs

Activity Measure	Product Y			Product Z
Machining		8,000			2,000
Number of setups		40			160
Number of products		1			1
Direct labor-hours		9,000			3,000

Foundational 4-5

What is the activity rate for the Product Design activity cost pool?

What is the activity rate for the General Factory activity cost pool?

Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Y?

Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Z?

Answer 1

1)The activity rate for the Product Design activity cost pool

= Estimated Cost / Expected Activity

=$84,000/2

=$ 42000

2) The activity rate for the General Factory activity cost pool

= Estimated Cost / Expected Activity

=$300,000/12,000

=$ 25

	Activity Cost Pool	Estimated Overhead Cost	Expected Actvity	Activity Rate
	Machining	$             200,000.00	10000	$            20.00
	Machine Set up	$             100,000.00	200	$          500.00
	Production design	$               84,000.00	2	$    42,000.00
	Factory oOverheads	$             300,000.00	12000	$            25.00
3)	Product Y	Expected Actvity	Activity Rate	Assigned Cost
	Machining	8000	$            20.00	$ 160,000.00
	Machine Set up	40	$          500.00	$    20,000.00
	Production design	1	$    42,000.00	$    42,000.00
	factory overheads	9000	$            25.00	$ 225,000.00
	Total Manufacturing Overhead cost Assigned			$ 447,000.00
4)	Product z	Expected Actvity	Activity Rate	Assigned Cost
	Machining	2000	$            20.00	$    40,000.00
	Machine Set up	160	$          500.00	$    80,000.00
	Production design	1	$    42,000.00	$    42,000.00
	factory overheads	3000	$            25.00	$    75,000.00
	Total Manufacturing Overhead cost Assigned			$ 237,000.00