Part 1 –
Cost Pool |
Total Overhead Costs (A) |
Activity/Cost Driver (Total) (B) |
Activity Rate (A / B) |
|
Cutting |
$396,000 |
220,000 Machine Hours |
$1.80 |
Per machine hour |
Design |
$643,500 |
1650 Setups |
$390.00 |
per setup |
Total |
$1,039,500 |
Overhead Rate for activity based costing
Cutting $1.80 per machine hour
Design $390 per setup
Part 2 –
Wool Product Line |
Cotton Product Line |
|||||||
Cost Pool |
Total Overhead Costs |
Activity/Cost Driver (Total) |
Activity Rate (C ) |
Activity Driver incurred (G) |
Overhead Assigned (G*C) |
Activity Driver incurred (O) |
Overhead Assigned (O*C) |
|
Cutting |
$396,000 |
220,000 Machine Hours |
$1.80 |
Per machine hour |
110000 |
$198,000 |
110000 |
$198,000 |
Design |
$643,500 |
1650 Setups |
$390.00 |
per setup |
1100 |
$429,000 |
550 |
$214,500 |
Total |
$1,039,500 |
$627,000 |
$412,500 |
Overhead Allocated
Wool Product Line = $627,000
Cotton Product Line = $412,500
Part 3 –
Overhead Rate using tradition approach = Total Overheads $1,039,500 / Total Direct labor hours 495,000
= $2.10 per direct labor hour
Part 4 –
It is given that direct labor hours are incurred evenly. It means 247,500 hours incurred in both product line.
Overhead allocated
Wool Product Line = 247,500 Hours x Overhead Rate $2.10 = $519,750
Cotton Product Line = 247,500 Hours x Overhead Rate $2.10 = $519,750
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