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 $745,200 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	$	242,400	12,000	MHs
Machine setups	Number of setups	$	114,400	220	setups
Product design	Number of products	$	86,000	2	products
General factory	Direct labor-hours	$	302,400	14,400	DLHs

Activity Measure	Product Y	Product Z
Machine-hours	7,200	4,800
Number of setups	40	180
Number of products	1	1
Direct labor-hours	8,200	6,200

9. Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Y?
10.Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Z?
11. Using the plantwide overhead rate, what percentage of the total overhead cost is allocated to Product Y and Product Z?
12. Using the ABC system, what percentage of the Machining costs is assigned to Product Y and Product Z?
13. Using the ABC system, what percentage of Machine Setups cost is assigned to Product Y and Product Z?
14. Using the ABC system, what percentage of the Product Design cost is assigned to Product Y and Product Z?
15. Using the ABC system, what percentage of the General Factory cost is assigned to Product Y and Product Z?

Answer 1

9) Total manufacturing overhead cost assigned to product Y = (20.2*7200+520*40+43000+21*8200) = $381440

10) Total manufacturing overhead cost assigned to product Z = (20.2*4800*520*180+43000+21*6200) = $363760

11) Percentage

	Product Y	Product Z
Direct labor hour	8200/14400 = 57%	6200/14400 = 43%

12) Percentage

	Product Y	Product Z
Machine hour	7200/12000 = 60%	40%

13) Percentage

	Product Y	Product z
Machine setup	40/220 = 18.18%	180/220 = 81.82%

14) Percentage

	Product Y	Product z
Product design	1/2 = 50%	50%

15) Percentage

	Product Y	Product z
General factory	8200/14400 = 57%	43%