Hickory Company manufactures two products—15,000 units of Product Y and 7,000 un
ID: 2424670 • Letter: H
Question
Hickory Company manufactures two products—15,000 units of Product Y and 7,000 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—15,000 units of Product Y and 7,000 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
Activity Cost Pool
Estimated Overhead Cost
Expected Activity
Per unit cost
Machining
$ 227,700
11000 MHs
$ 20.7
Machine setups
$ 153,900
270 setups
$ 570
Production design
$ 91,000
2 products
$ 45500
General factory
$ 257,000
10000 DLHs
$ 25.70
Using ABC system, Total manufacturing overhead cost would be assigned to Product Y=
Activity Measure
Per unit cost
Expected Activity
Total cost
Machining
$ 20.7
7700 MHs
$ 159390
Number of setups
$ 570
60 setups
$ 34200
Number of products
$ 45500
1 products
$45500
Direct labor-hours
$ 25.70
8700 DLHs
$ 223590
Total manufacturing overhead cost assigned to product Y
$ 462680
Activity Cost Pool
Estimated Overhead Cost
Expected Activity
Per unit cost
Machining
$ 227,700
11000 MHs
$ 20.7
Machine setups
$ 153,900
270 setups
$ 570
Production design
$ 91,000
2 products
$ 45500
General factory
$ 257,000
10000 DLHs
$ 25.70
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