Answer
Y: 25%;
Z: 75%
Work Step by Step
Total overhead cost for Machining: 100,000
Using the ABC system, percentage of the Machining costs assigned to Product Y: $\frac{25,000}{100,000} \times 100 = 25$%
Percentage allocated to Product Z: $100−25=75$%
Under the ABC system, 25% and 75% of the Machine Setups cost is allocated to Products Y and Z, whereas the plantwide approach allocates 67% and 33% of all overhead costs to the two products. These allocation percentages are different because Machine Setups is a batch-level cost pool. Although Product Y is the high-volume product (14,000 units) and Product Z is the low- volume product (6,000 units), Product Y only consumes 25% of the total machine setups and Product Z consumes 75% of the total machine setups. The conventional system is allocating too much of the machine setup costs to Product Y and too little of these costs to Product Z.
