Question

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Hickory 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 $684,000 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
Product design	Number of products	$	84,000	2	products
General factory	Direct labor-hours	$	300,000	12,000	DLHs

Activity Measure	Product Y	Product Z
Machine-hours	7,000	3,000
Number of setups	50	150
Number of products	1	1
Direct labor-hours	8,000	4,000

4. What is the activity rate for the Machine Setups activity cost pool?

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?

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

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

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

11. Using the plantwide overhead rate, what percentage of the total overhead cost is allocated to Product Y and Product Z? (Round your "Percentage" answers to 1 decimal place.)

12. Using the ABC system, what percentage of the Machining costs is assigned to Product Y and Product Z?

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

14. Using the ABC system, what percentage of the Product Design cost is assigned to Product Y and Product Z?

15. Using the ABC system, what percentage of the General Factory cost is assigned to Product Y and Product Z? (Round your "Percentage" answers to 1 decimal place.)

Answer 1

Activity Cost Pool	Activity Measure	Estimated Overhead Cost	Expected Activity		Activity Rate
Machining	Machine-hours	200,000.00	10000	MHs	20.00
Machine setups	Number of setups	100,000.00	200	setups	500.00
Product design	Number of products	84,000.00	2	products	42,000.00
General factory	Direct labor-hours	300,000.00	12000	DLHs	25.00

4. What is the activity rate for the Machine Setups activity cost pool?
$500
5. What is the activity rate for the Product Design activity cost pool?
$42,000
6. What is the activity rate for the General Factory activity cost pool?
$25
8. Which of the four activities is a product-level activity?
Product Design
9. Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Y?
Activity Measure		Units	Activity Rate	Amount
Machine Hours	Product Y	7000	20.00	140,000.00
No. of Setup	Product Y	50	500.00	25,000.00
Number of products	Product Y	1	42,000.00	42,000.00
Direct labor-hours	Product Y	8000	25.00	200,000.00
				407,000.00
10. Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Z?
Activity Measure		Units	Activity Rate	Amount
Machine Hours	Product Z	3000	20.00	60,000.00
No. of Setup	Product Z	150	500.00	75,000.00
Number of products	Product Z	1	42,000.00	42,000.00
Direct labor-hours	Product Z	4000	25.00	100,000.00
				277,000.00
11. Using the plantwide overhead rate, what percentage of the total overhead cost is allocated to Product Y and Product Z?
		Units	Allocation	Amount
Direct labor-hours	Product Y	8000	684000/12000*8000	456,000.00
	Product Z	4000	684000/12000*4000	228,000.00
		12000
12. Using the ABC system, what percentage of the Machining costs is assigned to Product Y and Product Z?
Product Y	70%
Product Z	30%
Activity Measure		Units	Activity Rate	Amount
Machine Hours	Product Y	7000	20.00	140,000.00
Machine Hours	Product Z	3000	20.00	60,000.00
				200,000.00
13. Using the ABC system, what percentage of Machine Setups cost is assigned to Product Y and Product Z?
Product Y	25%
Product Z	75%
Activity Measure		Units	Activity Rate	Amount
No. of Setup	Product Y	50	500.00	25,000.00
No. of Setup	Product Z	150	500.00	75,000.00
				100,000.00
14. Using the ABC system, what percentage of the Product Design cost is assigned to Product Y and Product Z?
Product Y	50%
Product Z	50%
Activity Measure		Units	Activity Rate	Amount
Number of products	Product Y	1	42,000.00	42,000.00
Number of products	Product Z	1	42,000.00	42,000.00
15. Using the ABC system, what percentage of the General Factory cost is assigned to Product Y and Product Z?				84,000.00
Product Y	67%
Product Z	33%
Direct labor-hours	Product Z	4000	25.00	100,000.00
Direct labor-hours	Product Y	8000	25.00	200,000.00
				300,000.00

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