Question

EcoFabrics has budgeted overhead costs of $1,086,750. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 517,500 for the current year. The company ha decided to experiment with activity-based costing and has created two activity cost pools and related activity cost drivers. These two cost pools are cutting (cost driver is machine hours) and design (cost driver is number of setups) Overhead alocated to the cutting cost pool $414,000 and $672,750 is allocated to the design cost Pool. Additional information related to these pools is as follows. Wool Cotton Total Machine hours 115,000 113,000 230,000 Number of setups 1.150 575 1.725 Calculate the overhead rate using activity based costing. (Round answers to 2 decmal places, e.g. 12.25.) Overhead rates for activity-based costing Cutting Design per machine hour per setup Determine the amount of overhead allocated to the wool product line and the cotton product line using activity-based costing. Wool uct lineCotton line Overhead Allocateds LINK TO TEXT LINK TO TEXT Calculate the overhead rate using traditional approach. (Round answer to 2 decimal places, e.g. 12.25.) Overhead rates using the traditional approach per direct labor hour

Answer 1

Requirement 1

Overhead rates for Activity based costing
Cutting	$       1.80	Per machine hour
Design	$ 390.00	Per setup

Working
Activity	Cost	Driver	Total Driver	Activity Rate
Cutting	$     4,14,000.00	Number of Machine hours	230000	$         1.80	Per machine hour
Design	$     6,72,750.00	Number of Setups	1725	$    390.00	Per Setup

Requirement 2

	Wool product line	Cotton product line
Overheads Allocated	$       6,55,500.00	$     4,31,250.00

Working
Wool product line
Activity Cost Pool	Activity rate	No. of activities	ABC Cost
Cutting	$       1.80	115000	$        2,07,000.00
Design	$ 390.00	1150	$        4,48,500.00
Total Overhead cost			$        6,55,500.00

Working
Cotton product line
Activity Cost Pool	Activity rate	No. of activities	ABC Cost
Cutting	$        1.80	115000	$    2,07,000.00
Design	$   390.00	575	$    2,24,250.00
Total Overhead cost			$    4,31,250.00

Requirement 3

Total Overheads	$ 10,86,750.00
Total Labor hours	517500
Plantwide Overhead rate	$ 2.10

Requirement 4

Allocation of Overheads using traditional approach
	Wool product line	Cotton product line
Direct labor hours	258750	258750
Plantwide Overhead rate	$                  2.10	$                  2.10
Overheads applied	$   5,43,375.00	$    5,43,375.00