Question

View Policies Current Attempt in Progress EcoFabrics has budgeted overhead costs of $1,039,500. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 495,000 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 $396,000 and $643,500 is allocated to the design cost pool. Additional information related to these pools is as follows. Wool Cotton Total 110,000 110,000 220,000 Machine hours Number of setups 1,100 550 1,650

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

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		$	$

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

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    $ $

Answer 1

Requirement (1) Overhead Rates for Activity based Costing : Cutting (396000/220000) Design (643500/1650) $ $ 1.80 Per MH 390.00 Per Setup Requirement (2) Overhead Allocated Wool Product Line Cotton Product Line $ 627,000 $ 412,500 (110000*1.8+1100*390) (110000*1.8+550*390) Requirement (3) Overhead Rate Using Traditional Approach $ Total overhead Cost Divided by : Number of Directlabour hours 1,039,500 495000 2.10 $ Requirement (4) Wool Product Line Cotton Product Line 519,750 $ 519,750 Overhead Allocated $ (247500*2.1) (247500*2.1) Note : Do Comment for any issue