Question

Required information 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 labour-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: Machining Machine setups Production design General factory Activity Measure Machine-hours Number of setups Number of products Direct labour-hours Estimated Overhead Cost $192,000 $ 50,400 $ 76,000 $387,200 Expected Activity 10,000 MHS 120 setups 2 products 12,000 DLHS Product Y 6,200 Product 2 3,800 Activity Measure Machine-hours Number of setups Number of products Direct labour-hours 50 10,000 2.000 Required: Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Y? (Do not round Intermediate calculations and round your final answer to the nearest dollar amount.) Total manufacturing overhead cost

Answer 1

Calculate activity rate for each activity measure as follows:

	Activity Measure	Estimated Overhead Cost	Expected Activity	Activity Rate
		(A)	(B)	(A/B)
Machining	Machine-hours	192000	10000	19.2	per MHs
Machine setups	Number of setups	50400	120	420	per setup
Production design	Number of products	76000	2	38000	per product
General Factory	Direct labor-hours	387200	12000	32.26666667	per DLHs

Now calculate the amount of total manufacturing overhead cost assigned to Product Y as follows:

Total manufacturing overhead cost = (6,200 x 19.2) + (50 x 420) + (1 x 38,000) + (10,000 x 32.26666667) = 500,707