[The following information applies to the questions displayed below.] Hickory Co

Question

[The following information applies to the questions displayed below.]

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 $684,000 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:

Required:

1. What is the company’s plantwide overhead rate?

Activity Cost Pool Activity Measure Estimated Overhead Cost Expected Activity Machining Machine-hours $ 200,000 10,000 MHs Machine setups Number of setups $ 100,000 200 setups Product design Number of products $ 84,000 2 products General factory Direct labor-hours $ 300,000 12,000 DLHs

Explanation / Answer

1. The  plantwide overhead rate is based on direct labor-hours.

Hence the  plantwide overhead rate = manufacturing overhead / Total Direct Labor Hours

= $ 684,000 / 12,000 Direct Labor Hours

= $ 57 per Direct Labor Hour

Hence the correct answer is $ 57 per Direct Labor Hour

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