Greenwood 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 considering implementing an activity-based costing (ABC) system that allocates all 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 $200,000 10,000 MHs
Machine setups Number of setups $100,000 200 setups
Production design Number of products $84,000 2 products
General factory Direct labor-hours $300,000 12,000 DLHs
Activity Measure Product Y Product Z
Machining 8,000 2,000
Number of setups 40 160
Number of products 1 1
Direct labor-hours 9,000 3,000
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?
6. What is the activity rate for the General Factory activity cost pool?
7. Which of the four activities is a batch-level activity?
8. Which of the four activities is a product-level activity?
9. Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Y?
10. Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Z?
11. Using the plantwide overhead rate, what percentage of the total overhead cost is allocated to Product Y and Product Z?
12. Using the ABC system, what percentage of the Machining costs is assigned to Product Y and Product Z?
13. Using the ABC system, what percentage of Machine Setups cost is assigned to Product Y and Product Z? (Round your answers to 2 decimal places.)
14. Using the ABC system, what percentage of the Product Design cost is assigned to Product Y and Product Z?
15. Using the ABC system, what percentage of the General Factory cost is assigned to Product Y and Product Z?

Greenwood Company

1. Company's plantwide overhead rate = $57

2. Allocation of Manufacturing overhead based on plantwide overhead rate:

Product Y = $57 * 9,000 = $513,000

Product Z = $57 * 3,000 =  $171,000

3. Activity rate for the Machining activity cost pool = $20 per MHs.

4. Activity rate for the Machine Setups activity cost pool = $500 per setup.

5. Activity rate for the product Design activity cost pool = $42,000 per product.

6. Activity rate for the General Factory activity cost pool = $25

7. The batch-level activity = Machine setup

8. The product-level activity = Product Design

9. Using the ABC system, Manufacturing overhead cost assigned to Product Y = $447,000

10. Using the ABC system, Manufacturing overhead cost assigned to Product Z = $237,000

11. Using the plantwide overhead rate, the percentage of the total overhead costs allocated to product Y and Product Z is:

Product Y = 75% ($513,000/$684,000 * 100)

Product Z = 25% ($171,000/$684,000 * 100)

12. Using the ABC system, the percentage of the Machining costs assigned to Product Y and Product Z is:

Product Y = 80% ($160,000/$200,000 * 100)

Product Z = 20% ($40,000/$200,000 * 100)

13. Using the ABC system, the percentage of the Machine Setups cost assigned to Product Y and Product Z is:

Product Y = 20% ($20,000/$100,000 * 100)

Product Z = 80% ($80,000/$100,000 * 100)

14. Using the ABC system, what percentage of the product design cost assigned to Product Y and Product Z is:

Product Y = 50% ($42,000/$84,000 * 100)

Product Z = 50% ($42,000/$84,000 * 100)

15. Using the ABC system, what percentage of the General Factory cost assigned to Product Y and Product Z is:

Product Y = 75% ($225,000/$300,000 * 100)

Product Z = 25% ($75,000/$300,000 * 100)

Explanation:

a) Data and Calculations:

            Activity Cost    Activity Measure     Estimated              Expected

                  Pool                                         Overhead Cost        Activity

Machining                   Machine-hours         $200,000            10,000 MHs

Machine setups          Number of setups    $100,000             200 setups

Production design      Number of products  $84,000             2 products

General factory          Direct labor-hours    $300,000            12,000 DLHs

Total                                                              $684,000  

Activity Measure        Product Y         Product Z

Units produced               14,000            6,000

Machining                        8,000            2,000

Number of setups                40                160

Number of products               1                     1

Direct labor-hours          9,000            3,000

Plantwide overhead rate = Total overhead costs/direct labor-hours

= $684,000/12,000 = $57 per DLHs

Overhead Rate =

Machining                   $20  ($200,000/10,000) per MHs

Machine setup           $500  ($100,000/200) per setup

Production design     $42,000 ($84,000/2) per product

General factory          $25 ($300,000/12,000) per DLHs

Assignment of Manufacturing Overhead:

                                Product Y   Product Z    Total     Product Y   Product Z

Machining                $160,000   $40,000  $200,000    80%           20%

Machine setup            20,000      80,000    100,000     20%           80%

Production design      42,000      42,000      84,000     50%           50%

General factory        225,000      75,000    300,000     75%           25%

Total overhead      $447,000  $237,000  $684,000

the correct answer is b.)

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