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

Computation of overhead rate

Total manufacturing overhead cost for Product Z

Estimated overhead Expected activity Activity base Overhead rate 249,600 12,000 hrs Machining / Machine hrs $20.8 162,400 280 setup Machine setup/ number of setup $580 92,000 2 products Product design/ No. of product $46,000 309,600 12,000 hours General factory cost / DLH $25.8

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