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: (The total estimated overhead cost may not agree with the sum of allocated overhead costs to each product.)

  

  

   

    

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: (The total estimated overhead cost may not agree with the sum of allocated overhead costs to each product.)

Explanation / Answer

Solution:

Predetermined Overhead Rate Activity Cost pool Cost Machining 198,000 Machine set ups 86,400 Production design 82,000 General Factory 248,000 Total overheads 614,400 Direct Labor hours Product Y 7,800 Product Z 2,200 Total Direct Labor hours 10,000 Predetermined Overhead rate = Total Overheads / Total direct labor hours Predetermined Overhead rate = 61.44

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