Hickory 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 a considering implementing an activity-based costing (ABC) costing to allocate all of its manufacturing overhead to their products using 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 | Total Activity Cost Pool | Total Amount of Activity Allocation Base | |
| Machining | Machine-hours | $ 200,000.00 | 10,000 | |
| Machine setups | Number of setups | $ 100,000.00 | 200 | |
| Inspection | Number of inspections | $ 50,000.00 | 25,000 | |
| General factory | Direct Labor-hours | $ 300,000.00 | 12,000 | |
| $650,000.00 | ||||
| Activity Measure | Total Amount of the Activity Allocation Base for All Units of Product Y | Total Amount of the Activity Allocation Base for All Units of Product Z | Total Amount of Activity Allocation Base | |
| Machine-hours | 7,000 | 3,000 | 10,000 | |
| Number of setups | 50 | 150 | 200 | |
| Number of Inpections | 12,000 | 13,000 | 25,000 | |
| Direct Labor-hours | 8,000 | 4,000 | 12,000 | |
| Direct Costs for Products Y & Z: | ||||
| Direct Costs: | Total Cost for All units Produced of Product Y | Total Cost for All units Produced of Product Product Z | ||
| Direct Material | $100,000.00 | $ 110,000.00 | ||
| Direct Labor | $50,000.00 | $ 60,000.00 | ||
| Number of Finished Units Produced 1. The company’s plantwide overhead rate. 2. Using the traditional plantwide overhead rate , the amount of manufacturing overhead cost allocated to Product Y and Product Z. 3. Total product cost for Product Y and Z under the traditional plantwide overhead rate system. 4. Total product cost per unit for Product Y and Product Z under the traditional plantwide overhead rate system. 5. The company switches to an ABC costing system for allocating overhead to product Y and product Z. Calculate the overhead activity rate for the four cost pools (machining, machine setups, inspections and general factory) 6. Using the ABC system, calculate total manufacturing overhead cost assigned to Product Y. 7. Using the ABC system, calculate total manufacturing overhead cost would be assigned to Product Z. 8. Total product cost for Product Y and Z under the Activity based costing system? 9. Total product cost per unit for Product Y and Product Z under Activity Based Costing system. 10. Which product was overcosted when using the Plantwide rate, in comparison to ABC Costing? 11. Which product was undercosted when using the Plantwide rate, in comparison to ABC Costing? | 14,000 | 6,000 | ||
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