Question

Hickory Company manufactures two products—13,000 units of Product Y and 5,000 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 $788,400 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	$ 238,800	12,000	MHs
Machine setups	Number of setups	$ 93,100	190	setups
Product design	Number of products	$ 83,000	2	products
General factory	Direct labor-hours	$ 373,500	14,400	DLHs

 

Activity Measure	Product Y	Product Z
Machine-hours	6,900	5,100
Number of setups	40	150
Number of products	1	1
Direct labor-hours	7,900	6,500

Required:

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

Answer 1

The plantwide overhead rate would be:

Overhead rate = Budgeted Overhead / Total Direct Labor Hours

788,400 / 14,400 = $54.75 per direct labor hour