Foundational [LO7-1, LO7-3, LO7-4] Hickory Company manufactures two products-14,

Question

Foundational [LO7-1, LO7-3, LO7-4] 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 lts manufacturing overhead to four cost pools. The following additional information is avallable for the company as a whole and for Products Y and Z: Estlmated Overhead Activity Cost PoolActivity Measuredst Machining Machine setups Production design General factory Expected Activity Machine-hours Number of setups Number of products Direct labor-hoursS $192.000 10,000 MHs $ 50.400 $ 76.000 s 387,200 12.000 DLHs 120 setups 2 products Product Y Product z 6,200 3,800 70 Activity Measure Machine-hours Number of setups Number of products Direct labor-hours 50 10,000 2,000

Explanation / Answer

Activity Cost Pool Estimated Overhead Expected use of Cost Drivers Activity-Based Overhead rate Machining                              192,000 10000             19.20 per machine hrs Machine setups                                50,400 120           420.00 per set up Production design                                76,000 2     38,000.00 per product General Factory                              387,200 12000             32.27 per direct lab. Hr Total Overhead                              705,600 Alocation of Overhead Cost Under ABC Product Y Product Z Total Machining                              119,040                             72,960        192,000 Machine setups                                21,000                             29,400           50,400 Production design                                38,000                             38,000           76,000 General Factory                              322,667                             64,533        387,200 Total                              500,707                          204,893        705,600 Answer 7-5 Production design Activity Cost Pool = $38000 per product Answer 7-6 General Factory Cost Pool = $32.27 per direct lab hr Answer 7-9 Total manufacturing Overhead Assigned to product Y = $500707 Answer 7-10 Total manufacturing Overhead Assigned to product Z = $204893 Answer 7-11 Plantwide Overhead Rate = $705600 / 12000 DLH = $58.80 per DLH Allocating Ovehead as per plantwide Overhead Rate Product Y Product Z Total Manufacturing Overhead 588000 117600 705600 ($58.80 X 10000 DLH) ($58.80 X 2000 DLH) Manufacturing Overhead (In %) 83.33% 16.67%

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