Hickory Company manufactures two products”14,000 units of Product Y and 6,000 units of Product Z. The company uses a plant wide 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 $200,000 10,000 MHs Machine setups …………………. Number of setups $100,000 200 setups Production design ………………. Number of products $84,000 2 products General factory ………………….. Direct labor-hours $300,000 12,000 DLHs Activity Measure Product Y Product Z Machining …………………………. 7,000 3,000 Number of setups ………………. 50 1 50 Number of products ……………. 1 1 Direct labor-hours ………………. 8,000 4,000 QUESTIONS: 1. What is the company’s plantwide overhead rate? 2. Using the plantwide overhead rate, how much manufacturing overhead cost is allocated to Product Y? How much is allocated to Product Z? 3. What is the activity rate for the Machining activity cost pool? 4. What is the activity rate for the Machine Setups activity cost pool? 5. What is the activity rate for the Product Design activity cost pool? 6. What is the activity rate for the General Factory activity cost pool? 7. Which of the four activities is a batch-level activity? Why? 8. Which of the four activities is a product-level activity? Why? 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? What percentage is allocated to Product Z? 12. Using the ABC system, what percentage of the Machining costs is assigned to Product Y? What percentage is assigned to Product Z? Are these percentages similar to those obtained in question 11? Why? 13. Using the ABC system, what percentage of Machine Setups cost is assigned to Product Y? What percentage is assigned to Product Z? Are these percentages similar to those obtained in question 11? Why? 14. Using the ABC system, what percentage of the Product Design cost is assigned to Product Y? What percentage is assigned to Product Z? Are these percentages similar to those obtained in question 11? Why? 15. Using the ABC system, what percentage of the General Factory cost is assigned to Product Y? What percentage is assigned to Product Z? Are these percentages similar to those obtained in question 1 ? Why?
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