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
1. Using the plantwide overhead rate, what percentage of the total overhead cost is allocated to Product Y and Product Z? 2. Using the ABC system, what percentage of the Machining costs is assigned to Product Y and Product Z? What percentage of Machine Setups cost is assigned to Product Y and Product Z? 3. Using the ABC system, what percentage of the Product Design cost is assigned to Product Y and Product Z? 4. Using the ABC system, what percentage of the General Factory cost is assigned to Product Y and Product Z?

Answer 1

Req.1

Plantwide Overhead Rate:

Estimated Manufacturing Overhead ( 200,000 +100,000 +84,000+300,000)	$684,000
÷ Estimated Allocation of Base( Direct Labor Hour)	12,000DLH
Plantwide Overhead Rate9	$57 Per DLH

1)

	Product Y	Product Z	Total
Total Activity( DLH used) ( a)	9000	3000	12000
Multiply By: Rate Per Hour ( b)	$57	$57	$57
Total Cost Allocated (a×b) = (c)	$513,000	$171,000	$684,000
Percentage ( Particular amount÷ Total amount)	75%	25%	100%

Req.2

Machining Rate:

( $ 200,000 ÷ 10,000 = $ 20 per MH)

	Product Y	Product Z	Total
Total Activity( MH used) ( a)	8000	2000	10000
Multiply By: Rate Per Hour ( b)	$20	$20	$20
Total Cost Allocated (a×b) = (c)	$160,000	$40,000	$200,000
Percentage ( Particular amount÷ Total amount)	80%	20%	100

Machine Setup Cost Rate:

( $ 100,000 ÷ 200 setup = $ 500 per setup)

	Product Y	Product Z	Total
Total Activity( setup used) ( a)	40	160	200
Multiply By: Rate Per setup ( b)	$500	$500	$500
Total Cost Allocated (a×b) = (c)	$20,000	$80,000	$100,000
Percentage ( Particular amount÷ Total amount)	20%	80%	100%

Req.3

Product Design Cost Rate:

( $ 84,000 ÷ 2 = $42,000 per product)

	Product Y	Product Z	Total
Total Activity ( a)	1	1	2
Multiply By: Rate Per product ( b)	$42,000	$42,000	$42,000
Total Cost Allocated (a×b) = (c)	$42,000	$42,000	$84,000
Percentage ( Particular amount÷ Total amount)	50%	50%	100%

Req.4

General Factory

( $ 300,000 ÷ 12,000 = $ 25 per DLH)

	Product Y	Product Z	Total
Total Activity( DLH used) ( a)	9000	3000	12000
Multiply By: Rate Per Hour ( b)	$25	$25	$25
Total Cost Allocated (a×b) = (c)	$225,000	$75,000	$300,000
Percentage ( Particular amount÷ Total amount)	75%	25%	100%