Exercise 4-3 a1-a2, b1-b2 (Video) (Part Level Submission) EcoFabrics has budgete
ID: 2338331 • Letter: E
Question
Exercise 4-3 a1-a2, b1-b2 (Video) (Part Level Submission)
EcoFabrics has budgeted overhead costs of $1,181,250. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 562,500 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 $450,000 and $731,250 is allocated to the design cost pool. Additional information related to these pools is as follows.
Wool
Cotton
Total
1,875
Calculate the overhead rate using traditional approach. (Round answer to 2 decimal places, e.g. 12.25.)
Wool
Cotton
Total
Machine hours 125,000 125,000 250,000 Number of setups 1,250 6251,875
Explanation / Answer
Overhead rates using the traditional approach = budgeted overhead costs / estimated direct labor hours
= $ 1,181,250 / 562,500 direct labor hours
= $ 2.10per direct labor hour
hence the correct answer is :
Overhead rates using the traditional approach $ 2.10 per direct labor hourRelated Questions
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