[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:

3. What is the activity rate for the Machining activity cost pool?

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

The correct answer is :

$ 20 per Machine Hours

Note :

The activity rate for the Machining activity cost pool = Estimated Overhead Cost of Machining / Machine-hours

= $ 200,000 / 10,000 Machine Hours

= $ 20 per Machine Hour

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