Question

EcoFabrics has budgeted overhead costs of $1,077,300. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 513,000 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 $410,400 and $666,900 is allocated to the design cost pool. Additional information related to these pools is as follows.

   Wool    Cotton Total

Machine hours    114,000    114,000 228,000

Number of set ups    1,140    570    1,710

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 set up

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

Activity rate
Activity		Total	Total	Activity
		Overheads	Cost driver	rate
Cutting		410400	2,28,000	1.8
Design		666900	1,710	390
Oh allocated
Activity		Rate	Wool product	Cotton Product
			Driver	OH cost	Driver	OH cost
Cutting		1.8	114000	2,05,200	1,14,000	2,05,200
Design		390	1140	4,44,600	570	2,22,300
		Total OH allocated	6,49,800		4,27,500
Req 3.
OH rate per DLH:
Total Overheads		10,77,300
Divide: Total DLH		5,13,000
OH rate per DLH:		2.10
Oh allocated
		Wool	Cotton
DLH used		256500	256500
Multiply: OH rate	2.1	2.1
OH allocated	538650	5,38,650