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.)

  

  

   

      

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

What is the activity rate for the Product Design activity cost pool?

Activity Cost Pool Activity Measure Estimated Overhead Cost Expected Activity activity rate   Machining Machine-hours 242400 12,000 MHs 20.2   Machine setups Number of setups 114400 220 setups 520   Production design Number of products 86000 2 products 43000   General factory Direct labor-hours 302400 12,000 DLHs 25.2

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