A Corporation manufactures two products: Product K and Product L. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products K and L. Activity Cost Pool Activity Measure Machining Machine setups Product design Machine-hours Number of setups Number of products S 56,000 Direct labor-hours Total Cost Total Activity S247,00013,000MHS S 60,000 150setups 2products 260,00010,000DLHS Order size Activity Measure Machine-hours Number of setups Number of products Direct labor-hours Product K Product L 3,000 10,000 110 40 6,000 4,000 Required: 1. Compute the plantwide (POHR) overhead rate. 2. Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product K? How much is allocated to Product L? 3. Using the ABC system, compute the activity rate for each activity cost pool. 4. Using the ABC system, how much total manufacturing overhead cost would be assigned to Product K? How much is allocated to Product L?

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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A Corporation manufactures two products: Product K and
Product L. The company uses a plantwide overhead rate
based on direct labor-hours. It is considering implementing an
activity-based costing (ABC) system that allocates its
manufacturing overhead to four cost pools. The following
additional information is available for the company as a
whole and for Products K and L.
Activity Cost Pool Activity Measure
Machining
Machine setups
Total Cost Total Activity
S 247,00013,000MHS
150setups
2products
Direct labor-hours $ 260,00010,000DLHS
Machine-hours
Number of setups S 60,000
Number of products S 56,000
Product design
Order size
Activity Measure
Machine-hours
Number of setups
Number of products
Direct labor-hours
Product K
Product L
10,000
110
3,000
40
6,000
4,000
Required:
1. Compute the plantwide (POHR) overhead rate.
2. Using the plantwide overhead rate, how much
manufacturing overhead cost would be allocated to
Product K? How much is allocated to Product L?
3. Using the ABC system, compute the activity rate for each
activity cost pool.
4. Using the ABC system, how much total manufacturing
overhead cost would be assigned to Product K? How
much is allocated to Product L?
Transcribed Image Text:A Corporation manufactures two products: Product K and Product L. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products K and L. Activity Cost Pool Activity Measure Machining Machine setups Total Cost Total Activity S 247,00013,000MHS 150setups 2products Direct labor-hours $ 260,00010,000DLHS Machine-hours Number of setups S 60,000 Number of products S 56,000 Product design Order size Activity Measure Machine-hours Number of setups Number of products Direct labor-hours Product K Product L 10,000 110 3,000 40 6,000 4,000 Required: 1. Compute the plantwide (POHR) overhead rate. 2. Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product K? How much is allocated to Product L? 3. Using the ABC system, compute the activity rate for each activity cost pool. 4. Using the ABC system, how much total manufacturing overhead cost would be assigned to Product K? How much is allocated to Product L?
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