Question

Exercise 17-03 al-a2, b1-b2 EcoFabrics has budgeted overhead costs of $1,096,200. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 522,000 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 $417,600 and $678,600 is allocated to the design cost pool. Additional information related to these pools is as follows. Machine hours Number of setups Wool 116,000 1,160 Cotton 116,000 580 Total 232,000 1,740 Your answer is correct. 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 1.80 per machine hour Design 390 per setup

Answer 1

Solution for last part indicated in red flags

	Wool Product line	Cotton product line
Overhead allocated	$   548,100.00	$ 548,100.00

Overhead are allocated using Direct labor and since direct labor hours are used evenly on both products the overhead will also be distributed evenly. (1096200/2)=$548100 each