Hickory Company manufactures two products—14,000 units of Product Y and 6,000 un

Question

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 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:

1. What is the company’s plantwide overhead rate? (Round your answer to 2 decimal places.)

2. Using the plantwide overhead rate, how much manufacturing overhead cost is allocated to Product Y and Product Z? (Round your intermediate calculations to 2 decimal places and final answers to the nearest dollar amount.)

3. What is the activity rate for the Machining activity cost pool? (Round your answer to 2 decimal places.

4. What is the activity rate for the Machine Setups activity cost pool?

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 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:

Explanation / Answer

1. Total budgeted overhead cost = (203,000 + 121,900 + 87,000 + 379,500) =$ 791,400

Total direct labor hours =12,000

Therefore the plantwide overhead rate = 791,400 /12,000 = $ 65.95

2. Product Y : 9,500 x 65.95 = $ 626,525

Product Z: 2,500 x 65.95 = $ 164,875

3. The activity rate for the machining activity cost pool = 203,000 / 10,000 = $ 20.30

4. The activity rate for the machine setups activity cost pool = 121,900 /230 = $530

5. The activity rate for the Product Design activity cost pool = 87,000 / 2 = $ 43,500

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