Question

EcoFabrics has budgeted overhead costs of $1,030,050. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 490,500 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 $392,400 and $637,650 is allocated to the design cost pool. Additional information related to these pools is as follows.

		Wool		Cotton		Total
Machine hours		109,000		109,000		218,000
Number of setups		1,090		545		1,635

Part 1

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		$enter a dollar amount per machine hour rounded to 2 decimal places	per machine hour
Design		$enter a dollar amount per setup rounded to 2 decimal places	per setup

eTextbook and Media

Part 2

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		$enter a dollar amount	$enter a dollar amount

eTextbook and Media

Part 3

Calculate the overhead rate using traditional approach. (Round answer to 2 decimal places, e.g. 12.25.)

Overhead rates using the traditional approach

$enter the overhead rate per direct labour hour in dollars rounded to 2 decimal places

per direct labor hour

eTextbook and Media

Part 4

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		$enter a dollar amount		$enter a dollar amount

Answer 1