Question

using EcoFabrics has budgeted overhead costs of $1,181,250, It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 562,500 for the current year. The company has decided to experiment with activity-based costing and has created two activity cost pools and related activity cost drivers. These two cost pools are cuttino (cost driver is machine hours) and design (cost driver is number of setups). Overhead allocated to the cutting cost pool is $450,000 and $731,250 is allocated to the design cost pool. Additional information related to these pools is as follows. the design cost podl. Adni e eutin fcest l i3450 o c Wool Cotton Total Machine hours 125,000 125,000 250,000 Number of setups1,2506251875 Calculate the overhead rata using activity based casting. (Round answers to 2 decimal places, e.g. 12.25.) Overhead rates for activity-based costing Cutting Design per machine hour machine per setup

Answer 1

Answer:

1)
Overhead rates for activity-based costing:
Cutting($450,000/250,000)	1.8	per machine hour
Design ($731,250/1875)	390	per setup
2)
Overhead Allocated:
Wool product line	$712,500	=(125,000*1.8)+(1250*390)
Cotton product line	$468,750	=(125,000*1.8)+(625*390)
3)
Overhead rates using the traditional approach = $11,81,250/$562,500=$2.1 per direct labor hour
4)
Overhead Allocated:
Wool product line($11,81,250/2)	$5,90,625
Cotton product line	$5,90,625