Question

! Required information The Foundational 15 (Algo) (LO7-1, LO7-3, LO7-4] [The following information applies to the questions displayed below.) Hickory Company manufactures two products—15,000 units of Product Y and 7,000 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 $696,000 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 Machining Machine setups Product design General factory Activity Measure Machine-hours Number of setups Number of products Direct labor-hours Estimated Overhead Cost Expected Activity $ 224,400 11,000 MHs $ 129,600 240 setups $ 88,000 2 products $ 254,000 13,200 DLHS Activity Measure Machine-hours Number of setups Number of products Direct labor-hours Product Y Product Z 7,400 3,600 180 1 1 8,400 4,800 60

1. Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Y?
2. Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Z?
3. Using the plantwide overhead rate, what percentage of the total overhead cost is allocated to Product Y and Product Z?
4. Using the ABC system, what percentage of the Machining costs is assigned to Product Y and Product Z?
5. Using the ABC system, what percentage of Machine Setups cost is assigned to Product Y and Product Z?
6. Using the ABC system, what percentage of the Product Design cost is assigned to Product Y and Product Z?
7. Using the ABC system, what percentage of the General Factory cost is assigned to Product Y and Product Z?

Answer 1

Cost Allocation & percentage of Cost allocation in ABC costing:

A B C D E F G H I J Estimated Activity Cost Pool Activity Measure 1 overhead Cost 2 Machining Machine Hours $ 224,400 3 Machine Setups No of Setups $ 129,600 4 Product Design No of Products $ 88,000 5 General Factory Direct Labor Hours $ 254,000 6 Total $ 696,000 Expected Activity 11000 240 Product Product Z Cost Cost Activity Activity Allocated to Y Allocated to Z 7400 3600 $ 150,960 $ 73,440 60 180 $ 32,400 $ 97,200 1 1 $ 44,000 $ 44,000 8400 4800 $ 161,636 $ 92,364 Total $ 388,996 $ 307,004 % of Cost % of Cost for Y for Z 67.27% 32.73% 25.00% 75.00% 50.00% 50.00% 63.64% 36.36% 2 13200

D G H Cost Allocated to Y Cost Allocated to Z % of Cost for Y % of Cost for Z Product Z Activity Cost Pool Activity Measure Estimated overhead Cost Expected Activity Product Y Activity 1 Activity 2 Machining Machine Hours 224400 11000 7400 3600 3 Machine Setups No of Setups 129600 240 60 180 4 Product Design No of Products 88000 2 1 1 5 General Factory Direct Labor Hours 254000 13200 6 Total =SUM(C2:C5) Total =C2/D2E2 =C3/D3*E3 =C4/D4*E4 =C5/D5*E5 =SUM(G2:55) =C2/D2*F2 =C3/D3*F3 =C4/D4*F4 =C5/D5*F5 =SUM(H2:15) =G2/C2 =G3/C3 =G4/C4 =G5/C5 =H2/C2 =H3/C3 =H4/04 =H5/C5 8400 4800

Using the plantwide overhead rate:

Overhead rate= Total Cost / Direct labor hours

=$ 696,000 / (8400+4800)

=$ 52.7272 per labor hour

Cost Allocated to product Y using plantwide overhead rate:

=Direct labor hours * Overhead Rate per labor hour

= 8400 * $ 52.7272

= $ 442,908.48

Cost Allocated to product Z using plantwide overhead rate:

=Direct labor hours * Overhead Rate per labor hour

= 4800 * $ 52.7272

= $ 253,090.56