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: (The total estimated overhead cost may not agree with the sum of allocated overhead costs to each product.)

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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: (The total estimated overhead cost may not agree with the sum of allocated overhead costs to each product.)

Explanation / Answer

The activity rate for the Product Design activity cost pool

=Estimated Overhead cost / Expected activity

=86,000/2 = $43,000

Overheads cost = Activity rate for the product design * Number of product

Product Y = $43000*1 =$43,000

Product Z = $43000*1 =$43,000

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