Question

Exercise 17-3 (Part Level Submission) EcoFabrics has budgeted overhead costs of $1,162,350. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 553,500 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 $442,800 and $719,550 is allocated to the design cost pool. Additional information related to these pools is as follows. Wool Cotton Total Machine hours 123,000 123,000 246,000 Number of setups 1,230 615 1,845 Collapse question part (a1) 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 $ Entry field with correct answer per machine hour Design $ Entry field with correct answer per setup. Collapse question part (a2) 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 $ $

Answer 1

(a1) Calculate the overhead rate using activity based costing. (Round answers to 2 decimal places, e.g. 12.25.)

Estimated overhead	Overhead cost	Estimated activity	Activity rate
Cutting	442800	246000 MH	1.8 per mh
Design	719550	1845 Setup	390 per setup

(a2) Determine the amount of overhead allocated to the wool product line and the cotton product line using activity-based costing.

	Wood product line	Cotton product line
Cutting cost	221400	221400
Design	1230*390 = 479700	615*390 = 239850
Total overhead cost	701100	461250