Question

Please answer questions 9, and 10. Thank you.

Chapter 2 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: Estimated Activity Overhead Expected Measure Cost Activity Machining $200,000 10,000 MH Machine setups $100,000 Machine-hours Number of setups Number of products Direct labour- hours 200 setups 2 products Product design $ 84,000 General factory $300,000 12,000 DLHS Product Produc Y tz Machine-hours 7,000 3,000 Number of setups 50 150 Number of products 1 Direct labour- hours Required: 8,000 4,000

Answer 1

Hickory Company Requirement 4 Machine setups activity cost pool = Estimated Overhead Cost/Expected Activity = 100000 / 200 = 500 Requirement 5 Product design activity cost pool = Estimated Overhead Cost / Expected Activity = 84000/2 = 42000 Requirement 6 General factory activity cost pool = Estimated Overhead Cost / Expected Activity = 300000 / 12000 = 25 Requirement 7 Machine setups activity is a batch level activity.A setup is performed to run a batch of units. The cost of the setup is determined by the resources consumed performing the setup and it is not influenced by the number of units processed once the setup is complete. Requirement 8 The product design activity is a product-level activity. The product design cost is determined by the number of products supported and it is not influenced by the number of batches or units processed.

Requirement 9 The activity rates are computed as follows: Estimated Expected Activity Cost Pool Ohd. Cost Activity Machining 200000 10000 MH Machine setups 100000 200 Setups Product design 84000 2 Products General factory 300000 12000 DLH'S Activity Rate 20 per MH 500 per setup 42000 per product 25 per DLH Product Y Machining, at $20.00 per machine-hour Machine setups, at $500 per setup Product design, at $42,000 per product General factory, at $25 per direct labor-hour Total overhead costs assigned Expected Activity Amount 7000 140000 50 25000 42000 8000 200000 407000 Requirement 10 Machining, at $20.00 per machine-hour Machine setups, at $500 per setup Product design, at $42,000 per product General factory, at $25 per direct labor-hour Total overhead costs assigned Expected Activity Amount 3000 60000 150 75000 42000 4000 100000 277000