Hickory Company manufactures two products—13,000 units of Product Y and 5,000 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 $829,500 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 $ 246,000 12,000 MHs Machine setups Number of setups $ 137,500 250 setups Product design Number of products $ 89,000 2 products General factory Direct labor-hours $ 357,000 14,400 DLHs Activity Measure Product Y Product Z Machine-hours 7,500 4,500 Number of setups 40 210 Number of products 1 1 Direct labor-hours 8,500 5,900 Foundational 7-1 (Algo) Required: 1. What is the company’s plantwide overhead rate? 2. Using the plantwide overhead rate, how much manufacturing overhead cost is allocated to Product Y and Product Z? 3. What is the activity rate for the Machining activity cost pool? 4. What is the activity rate for the Machine Setups activity cost pool? 5. What is the activity rate for the Product Design activity cost pool?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Hickory Company manufactures two products—13,000 units of Product Y and 5,000 units of Product Z. The company uses a plantwide
| Activity Cost Pool | Activity Measure | Estimated Overhead Cost | Expected Activity | |
|---|---|---|---|---|
| Machining | Machine-hours | $ 246,000 | 12,000 | MHs |
| Machine setups | Number of setups | $ 137,500 | 250 | setups |
| Product design | Number of products | $ 89,000 | 2 | products |
| General factory | Direct labor-hours | $ 357,000 | 14,400 | DLHs |
| Activity Measure | Product Y | Product Z |
|---|---|---|
| Machine-hours | 7,500 | 4,500 |
| Number of setups | 40 | 210 |
| Number of products | 1 | 1 |
| Direct labor-hours | 8,500 | 5,900 |
Foundational 7-1 (Algo)
Required:
1. What is the company’s plantwide overhead rate?
2. Using the plantwide overhead rate, how much
3. What is the activity rate for the Machining activity cost pool?
4. What is the activity rate for the Machine Setups activity cost pool?
5. What is the activity rate for the Product Design activity cost pool?
The activity-based costing is a method of distributing overheads between various products or jobs. As per this method, the main activities of the business are determined and divided into cost pools that are divided with significant cost drivers.
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