Question

Exercise 17-03 al-a2, bl-b2 EcoFabrics has budgeted overhead costs of $973,350. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct la bor hours which are estimated to be 463,500 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 cutting (cost driver is machine hours) and design (cost driver is number of setups). Overhead allocated to the cutting cost pool is 5370,800 and $602,550 is allocated to the design cost pool. Additional information related to these pools is as follows. Machine hours Number of setups Wool 103,000 1,030 Cotton Total 103,000 206,000 5151,545 Calculate the overhead rate using activity based costing. (Round answers to 2 decimal places, e.g. 12.25.) Overhead rates for activity-based costing Cutting per machine hour Design per setup LINK TO TEXT LINK TO VIDEO Determine the amount of overhead allocated to the wool product line and the cotton product line using activity-based costing. Wool product line Cotton product line Overhead Allocated $ LINK TO TEXT LINK TO VIDEO 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 LINK TO TEXT LINK TO VIDEO What amount of overhead would be allocated to the wool and cotton product lines using the traditional approach, assuming direct labor hours were incurred evenly between the wool and cotton? Wool product line Cotton product line Overhead Allocated Click if you would like to Show Work for this question: Open Show Work

Answer 1

1	Overhead for activity based costing
	Cutting	=	Cutting Cost pool/Total Machine hours
		=	$370800/206000
		=	1.800
	Design	=	Design Cost Pool/Number of Setup
		=	$602550/1545
		=	390
2	Overhead Amount allocated to Wool Product and Cotton Product
				Wool	Cotton
		(a)	Machine hours	103000	103000
		(b)	Number of Setup	1030	515
		(c)	Cutting Cost [$1.8*(a)]	$    185,400.00	$    185,400.00
		(d)	Design Cost [$390*(b)]	$    401,700.00	$    200,850.00
			Total Overhead Allocated [(c)+(d)]	$    587,100.00	$    386,250.00
3	Overhead Using traditional approach
			Overhead rate = Total Overhead/Total Labour hours		973350/463500
					$                 2.10
4	Overhead Amount allocated to Wool Product and Cotton Product using traditional approach
				Wool	Cotton
		(a)	Labour Hours	231750	231750
		(b)	Total Overhead allocated [(a)*$2.10]	$    486,675.00	$    486,675.00