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:

  

  

Activity Cost Pool Activity Measure Estimated Overhead Cost Expected Activity   Machining Machine-hours $ 209,000    10,000 MHs   Machine setups Number of setups $ 171,100    290 setups   Production design Number of products $ 93,000    2 products   General factory Direct labor-hours $ 259,000    12,000 DLHs

Explanation / Answer

General factory cost $ 259,000 allocation is on the basis of direct labor hours to product Y and Z that is 89:31

Percentage of the General Factory cost is assigned to Product Y = 89/120 * 100 = 74.17%

Percentage of the General Factory cost is assigned to Product Z = 31/120 * 100 = 25.83%

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