Hickory Company manufactures two products—13,000 units of Product Y and 5,000 un
ID: 2422225 • Letter: H
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: Activity Cost Pool Activity Measure Estimated Overhead Cost Expected Activity Machining Machine-hours $ 228,000 12,000 MHs Machine setups Number of setups $ 40,000 100 setups Production design Number of products $ 74,000 2 products General factory Direct labor-hours $ 288,000 14,400 DLHs Activity Measure Product Y Product Z Machine-hours 10,000 2,000 Number of setups 40 60 Number of products 1 1 Direct labor-hours 7,000 7,400
Explanation / Answer
Calculation of overhead rate as per activity based costing
Calculation of overhead rate as per plant wide allocation using direct labour hours
Total overhead = $630000
Total labour hours = 14400 hours
Overhead rate per hour = $630000/14400 = $43.75 per hour
Allocation
Product Y = 7000 lab hrs* $43.75 = $306250
Product Z = 7400 lab hrs * $43.75 = $323750
Overhead rate per unit
Product Y = $306250/13000 = $23.5577 per unit
Product Z = $323750/5000 = $64.75 per unit
Activity cost pool Activity measure Estimated OH cost Expected activity Cost per unit of cost driver Product Y Product Z Machining Machine hours $228000 12000 19 10000*19 = 190000 2000*19 = 38000 Machine set up no of set ups $40000 100 400 400*40 = 16000 400*60 = 24000 Production design No of products $74000 2 37000 37000 37000 General factory Direct lab hrs $288000 14400 20 7000*20 = $140000 7400*20 = $148000 Total $630000 $383000 $247000 No of units 13000 5000 Overhead per unit $29.4615 $49.4Related Questions
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