Assignment #2

Ensure that you show your calculations!

PART 1

Hickory Company manufactures two products14,000 units of Product Y and 6,000 units of Product Z. The company uses a plantwide overhead rate based on direct labour-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 Measure	Estimated Overhead Cost	Expected Activity
Machining	Machine-hours	$200,000	10,000 MH
Machine setups	Number of setups	$100,000	200 setups
Product design	Number of products	$ 84,000	2 products
General factory	Direct labour-hours	$300,000	12,000 DLHs

	Product Y	Product Z
Machine-hours	7,000	3,000
Number of setups	50	150
Number of products	1	1
Direct labour-hours	8,000	4,000

Required:

What is the company's plantwide overhead rate?

Using the plantwide overhead rate, how much manufacturing overhead cost is allocated to Product Y? How much is allocated to Product Z?

What is the activity rate for the Machining activity cost pool?

What is the activity rate for the Machine Setups activity cost pool?

What is the activity rate for the Product Design activity cost pool?

What is the activity rate for the General Factory activity cost pool?

Which of the four activities is a batch-level activity? Why?

Which of the four activities is a product-level activity? Why?

Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Y?

Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Z?

PART 2

Diego Company manufactures one product that is sold for $80 per unit. The following information pertains to the company's first year of operations in which it produced 40,000 units and sold 35,000 units.

Variable costs per unit:
Manufacturing:
Direct materials	$24
Direct labour	$14
Variable manufacturing overhead	$2
Variable selling and administrative	$4
Fixed costs per year:
Fixed manufacturing overhead	$800,000
Fixed selling and administrative expenses	$496,000

Required:

Answer each question independently based on the original data unless instructed otherwise.

What is the unit product cost under variable costing?

What is the unit product cost under absorption costing?

What is the company's total contribution margin under variable costing?

What is the company's net operating income under variable costing?

What is the company's total gross margin under absorption costing?

What is the company's net operating income under absorption costing?

What is the company's break-even point in unit sales? Is it above or below the actual sales volume? Compare the break-even sales volume to your answer for question 6 and comment.

What is the CM ratio under variable costing?