Question

Mastery Problem: Activity-Based Costing WoolCorp Single Plantwide Rate Activity-Based Costing Final Question WoolCorp WoolCorp buys sheep's wool from farmers. The company began operations in January of this year, and is making decisions on product offerings, pricing, and vendors. The company is also examining its method of assigning overhead to products. You've just been hired as a production manager at WoolCorp. Currently WoolCorp makes two products: (1) raw, clean wool to be used as stuffing insulation and (2) wool yarn for use in the textile industry. The company would like you to evaluate its costing methods for its raw wool and wool yarn.

Answer 1

total Factory overhead:
Sorting	25600
Cleaning	38400
combing	1200
total Factory overhead:	65200
Combing Machine hours	70+30=100
Single plantride factory overhead rate:
65200/100 = $652 / Combing MH
	Raw Wool	Wool Yarn
Allocated factory overhead cost	45640	19560
Activity Based Costing:
Activity		Activity Rate
Sorting	25600/(800+3200)	6.4	Per sorting hour
Cleaning	38400/(1920+4480)	6	per unit of cleaning Mach. Power
Combing	1200/(70+30)	12	per hour of combing mach. Use
Overhead allocation :
	Raw Wool	Wool Yarn
Sorting cost	800*6.4=5120	3200*6.4=20480
Cleaning cost	1920*6=11520	4480*6=26880
Combing cost	70*12=840	30*12=360
We will recommend:
Activity based costing because it recognizes differences in how each product uses
factory overhead activities, yielding more accurate product costs.
Because the activity based costing allocates the overhead on the basis
of the each micro activity consumption by the product for accuracy.