Question

Greenwood 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 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	$	209,000			10,000	MHs
Machine setups	Number of setups	$	171,100			290	setups
Production design	Number of products	$	93,000			2	products
General factory	Direct labor-hours	$	259,000			10,000	DLHs

Activity Measure	Product Y			Product Z
Machining		8,900			1,100
Number of setups		50			240
Number of products		1			1
Direct labor-hours		8,900			1,100

4. What is the activity rate for the Machine Setups activity cost pool?

Answer 1

Machine setups cost	$ 171,100
Number of setups	290
Activity rate per setup ($171,100/290)	$          590

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