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:

  

Activity Cost Pool	Activity Measure	Estimated Overhead Cost		Expected Activity
Machining	Machine-hours	$	227,700	11,000	MHs
Machine setups	Number of setups	$	153,900	270	setups
Production design	Number of products	$	91,000	2	products
General factory	Direct labor-hours	$	257,000	10,000	DLHs

  

Activity Measure	Product Y	Product Z
Machining	7,700	3,300
Number of setups	60	210
Number of products	1	1
Direct labor-hours	8,700	1,300

1.	What is the company’s plantwide overhead rate? (Round your answer to 2 decimal places.)
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.)
3.	What is the activity rate for the Machining activity cost pool? (Round your answer to 2 decimal places.)
4.	What is the activity rate for the Machine Setups activity cost pool? (Round your answer to 2 decimal places.)
5.	What is the activity rate for the Product Design activity cost pool? (Round your answer to 2 decimal places.)
6.	What is the activity rate for the General Factory activity cost pool? (Round your answer to 2 decimal places.)
7.	Which of the four activities is a batch-level activity?
	Machining activity General factory activity Product design activity Machine setups activity
8.	Which of the four activities is a product-level activity?
	General factory activity Product design activity Machine setups activity Machining activity
9.	Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Y? (Round your intermediate calculations to 2 decimal places and final answer to the nearest dollar amount.)
10.	Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Z? (Round your intermediate calculations to 2 decimal places and final answer to the nearest dollar amount.)
11.	Using the plantwide overhead rate, what percentage of the total overhead cost is allocated to Product Y and Product Z? (Round your answers to 2 decimal places.)
12.	Using the ABC system, what percentage of the Machining costs is assigned to Product Y and Product Z? (Round your answers to 2 decimal places.)
13.	Using the ABC system, what percentage of Machine Setups cost is assigned to Product Y and Product Z? (Round your answers to 2 decimal places.)
14.	Using the ABC system, what percentage of the Product Design cost is assigned to Product Y and Product Z? (Round your answers to 2 decimal places.)
15.	Using the ABC system, what percentage of the General Factory cost is assigned to Product Y and Product Z? (Round your answers to 2 decimal places.)

Answer 1

Formula sheet

A	B	C	D	E	F	G	H	I
2
3
4		Activity Cost Pool	Activity Measure	Estimated Overhead Cost		Expected Activity
5		Machining	Machine-hours	$	227700	11000	MHs
6		Machine setups	Number of setups	$	153900	270	setups
7		Production design	Number of products	$	91000	2	products
8		General factory	Direct labor-hours	$	257000	10000	DLHs
9		Total			=SUM(F5:F8)
10
11		Activity Measure	Product Y	Product Z
12		Machining	7700	3300
13		Number of setups	60	210
14		Number of products	1	1
15		Direct labor-hours	8700	1300
16
17		1)
18
19		Using direct labor hours as the basis to assign overhead cost, first plantwide overhead rate need to be calculated using following formula:
20
21
22
23		Using the following data:
24		Total overhead cost	=F9
25		Total direct labor hours	=G8
26
27		Plantwide overhead rate can be calculated as follows:
28
29		Plantwide overhead allocation rate	=Total overhead costs / Total allocation base used
30			=D24/D25	=D24/D25
31
32		Hence Plantwide overhead allocation rate is	=D30
33
34		2)
35
36		Product	Activity Driver(Direct Labor Hours)		Plantwide Overhead rate	=	Overhead Allocated
37		Y	=D15	×	=D32	=	=D37*F37
38		Z	=E15	×	=D32	=	=D38*F38
39
40		Hence,
41		Overhead allocated to Y	=H37
42		Overhead allocated to Z	=H38
43
44		3), 4), 5) and 6)
45
46		Overhead allocation rate can be calculated as follows:
47
48
49
50
51		Activity	Total Budgeted cost	÷	Total Expected Use of allocation base	=	Allocation Rate
52		Machining	=F5	÷	=G5	=	=D52/F52
53		Machine setups	=F6	÷	=G6	=	=D53/F53
54		Production design	=F7	÷	=G7	=	=D54/F54
55		General factory	=F8	÷	=G8	=	=D55/F55
56		Total	=SUM(D52:D55)
57
58		Hence activity rate are as follows:
59
60		Activity	Activity Rate
61		=C52	=H52
62		=C53	=H53
63		=C54	=H54
64		=C55	=H55
65
66		7)
67
68		Batch level activity occurs for a batch of products.
69		Machine setup is done for to produce a particular batch of the product.
70
71		Hence machine setup is the batch level activity.
72
73		8)
74
75		Product level activity is the activity which is performed on each unit produced.
76		Machining activity will be required for each product to finish.
77
78		Hence machining activity is product level activity.
79
80
81		Given the following uses of activities:
82		Activity Measure	Product Y	Product Z	Total
83		Machining	7700	3300	=D83+E83
84		Number of setups	60	210	=D84+E84
85		Number of products	1	1	=D85+E85
86		Direct labor-hours	8700	1300	=D86+E86
87
88		9)
89			Activity Rate	×	Activity Driver	=	Allocated costs
90		Y
91		Machining	=H52	×	=D83	=	=D91*F91
92		Number of setups	=H53	×	=D84	=	=D92*F92
93		Number of products	=H54	×	=D85	=	=D93*F93
94		Direct labor-hours	=H55	×	=D86	=	=D94*F94
95		Total Overhead cost					=SUM(H91:H94)
96
97		Hence Total Overhead cost allocated to Y is	=H95
98
99
100		10)
101			Predetermined Rate	×	Resources required	=	Allocated costs
102		Z
103		Machining	=D91	×	=E83	=	=D103*F103
104		Number of setups	=D92	×	=E84	=	=D104*F104
105		Number of products	=D93	×	=E85	=	=D105*F105
106		Direct labor-hours	=D94	×	=E86	=	=D106*F106
107		Total Overhead cost					=SUM(H103:H106)
108
109		Hence Total Overhead cost allocated to Z is	=H107
110