Hickory Company manufactures two products—14,000 units of Product Y and 6,000 un

Question

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 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.)

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 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

Total mamufacturing overhead cost is $ 7,91,400

Total direct labor hours is 15,000

Plant wide overhead rate = 791,400 / 15,000 = $ 52.76 per direct labor hour

Overhead cost allocated to Product Y = 9,500 x 52.76 = $ 501,220

Overhead cost allocated to Product Z = 5,500 x 52.76 = $ 290,180

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