Question

EcoFabrics has budgeted overhead costs of $1,105,650. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 526,500 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 poolis $421,200 and $684,450 is allocated to the design cost pool. Additional information related to these pools is as follows. Total Machine hours Wool 117,000 1,170 Cotton 117.000 585 234.000 1.755 Number of setups

also, Calculate the overhead rates using the traditional approach.

Overhead Rates using the traditional approach is. ______$___________ 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?

                                               
Overhead Allocated.   for Wool Product Line is =____$_____

Overhead Allocated. for Cotton Product Line is
=____$______

Answer 1

Overhead rate using activity based costing is calculated as:

Overhead rate=Overhead allocated/Cost driver

Cutting Department:

Overhead rate=Overhead allocated/Total Machine hours

Overhead rate=$421,200/234,000

Overhead rate=$1.80 per machine hour

Design Department:

Overhead rate=Overhead allocated/Total Number of setups

Overhead rate=$684,450/1,755

Overhead rate=$390 per setups

Amount of overhead allocated is calculated as:

Cost allocated=(Number of machine hours*cost per machine hour)+(Number of setups*per setup cost)

Wool product line=(117,000*$1.80)+(1,170*$390)

Wool product line=$210,600+$456,300

Wool product line=$666,900

Amount of overhead allocated to Wool product line is $666,900

Cotton product line=(117,000*$1.80)+(585*$390)

Cotton product line=$210,600+$228,150

Cotton product line=$438,750
Amount of overhead allocated to Cotton product line is $438,750