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Hickory Company manufactures two products—14,000 units of Product Y and 6,000 units of Product Z. The...

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Accounting

Hickory Company manufactures two products—14,000 units ofProduct Y and 6,000 units of Product Z. The company uses aplantwide overhead rate based on direct labor-hours. It isconsidering implementing an activity-based costing (ABC) systemthat allocates all of its manufacturing overhead to four costpools. The following additional information is available for thecompany as a whole and for Products Y and Z:

Activity CostPoolActivityMeasureEstimated Overhead CostExpected Activity
MachiningMachine-hours$209,00010,000MHs
Machine setupsNumber of setups$171,100290setups
Production designNumber of products$93,0002products
General factoryDirect labor-hours$259,00012,000DLHs
ActivityMeasureProduct YProduct Z
Machine-hours7,9002,100
Number of setups50240
Number of products11
Direct labor-hours8,9003,100

Question: Using the ABC system, what percentage of the Machiningcosts is assigned to Product Y and Product Z?

Answer & Explanation Solved by verified expert
4.3 Ratings (732 Votes)

product Y

Product Z

Total

Machining cost assigned

$                 29,500.00

$     141,600.00

$ 171,100.00

% of machine cost

17.24%

82.76%

100.00%

Working notes

Calculation of Activity rates

Activity Cost Pool

Activity Measure

Estimated Overhead Cost (A)

Expected Activity (B)

Activity rate (A/B)

Machining

Machine-hours

$   209,000.00

10,000

$                20.90

Per MHs

Machine setups

Number of setups

$   171,100.00

290

$              590.00

Per setups

Production design

Number of products

$     93,000.00

2

$        46,500.00

Per products

General factory

Direct labor-hours

$   259,000.00

12,000

$                21.58

Per DLHs

Total

$     732,100.00

Cost assigned to Product Y

Activity name

Activity Rates

Activity

ABC Cost

(A)

(B)

(A x B)

Machining

$                         20.90

7900

$        165,110.00

Machine setups

$                       590.00

50

$           29,500.00

Production design

$                 46,500.00

1

$           46,500.00

General factory

$                         21.58

8900

$        192,091.67

Total Overheads assigned

$        433,201.67

Cost assigned to Product Z

Activity name

Activity Rates

Activity

ABC Cost

(A)

(B)

(A x B)

Machining

$                         20.90

2100

$           43,890.00

Machine setups

$                       590.00

240

$        141,600.00

Production design

$                46,500.00

1

$           46,500.00

General factory

$                         21.58

3100

$           66,908.33

Total Overheads assigned

$        298,898.33

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