The following information applies to the questions displayed below] Hickory Comp

Question

The following information applies to the questions displayed below] 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 whole and for Products Y and Z Estimated Activity Cost Pool Machining Machine setups Production design General factory Activity Measure Machine-hours Number of setups Number of products Direct labor-hours Overheed Cost $ 242,400 114,400 86,000 302,400 Expected Activity 2,000 MHs 220 setups $ 2 products 14,400 DLHs Activity Measure Machine-hours Number of setups Number of products Direct labor-hours 7,200 40 4,800 180 8,200 6,200 value 5.00 points Required information Required: What is the activity rate for the Machine Setups activity cost pool? per setup

Explanation / Answer

6. What is activity rate for machine setups activity cost pool?

Cost of Machine setups = $114,400

Count of activity (Machine setup) = 220

Thus, activity rate for machine setup = $114400/220 = $520

7. Using ABC, how much manufacturing over head should be allocated to Product Z?

First, lets calculate total overhead costs = $242400 + $114400 + $86000 + $302400

                                                                 = $745200

DLHs = 14400

As mentioned, plantwise over head is allocated using DLHs.

Overhead rate per DLH = $745200/14400 = $51.75

Product Z requires 6200 DLHs for production.

Thus, manufacturing overhead for Product Z = $51.75*6200 = $320850

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