Hickory Company manufactures two products—13,000 units of Product Y and 5,000 un

Question

Hickory Company manufactures two products—13,000 units of Product Y and 5,000 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:

Hickory Company manufactures two products-13,000 units of Product Y and 5,000 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: Estimated Overhead Activity Cost Pool Machining Machine setups Production design General factory Activity Measure Cost $ 238,800 ,000 MHs $ 93100 $ 83,000 $ 373,500 14,400 DLHs Expected Activity Machine-hours Number of setups Number of products Direct labor-hours 190 setups 2 products Activity Measure ProductY Product Z 5,100 150 6,900 40 Machine-hours Number of setups Number of products Direct labor-hours 7,900 6,500

Explanation / Answer

Answer 1. Predetermined Overhead Rate = 788400 (Total Overheads) / 14400 (Labour hrs) Predetermined Overhead Rate = $54.75 per direct lab. Hr. Answer 2. Manufacturing Overhead Allocated Product Y = $54.75 X 7900 Hrs = $432525 Product Z = $54.75 X 6500 Hrs = $355875 Answer 3. Activity Rate for the Machining activity Cost Pool = $238800 / 12000 (Machine Hrs) Activity Rate for the Machining activity Cost Pool = $19.90 per Machine hr. Answer 4. Activity Rate for the Machine Setups activity Cost Pool = $93100 / 190 (No. of set ups) Activity Rate for the Machine Setups activity Cost Pool = $490 per setup Answer 5. Activity Rate for the Product Design activity Cost Pool = $83000 / 2 (No. of products) Activity Rate for the Product Design activity Cost Pool = $41500 per product Answer 6. Activity Rate for the General Factory activity Cost Pool = $373500 / 14400 (Direct Labor Hr.) Activity Rate for the General Factory activity Cost Pool = $25.94 per direct labor Answer 7. Machine Setup Activity is Batch level Activity Answer 8. Product Design Activity - Product Level Activity

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