Specifically need help answering part b. Part A is the correct answer I was able
ID: 2390499 • Letter: S
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Specifically need help answering part b. Part A is the correct answer I was able to compute
American Fabrics has budgeted overhead costs of $1,043,460. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 474,300 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 $379,440 and $664,020 is allocated to the design cost pool. Additional information related to these pools is as follows.
Wool
Cotton
Total
(a)
(b)
Wool product line
Cotton product line
Wool product line
Cotton product line
Specifically need help answering part b. Part A is the correct answer I was able to compute
American Fabrics has budgeted overhead costs of $1,043,460. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 474,300 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 $379,440 and $664,020 is allocated to the design cost pool. Additional information related to these pools is as follows.
Wool
Cotton
Total
Machine hours 105,400 105,400 210,800 Number of setups 1,054 527 1,581Explanation / Answer
Solution b1:
Solution b2:
Overhead allocated to the wool and cotton product lines using the traditional approach = Direct labor hours * Predetermined overhead rate
As direct labor hors were incurred evenly between wool and cotton, therefore direct labor hours are 237150 (474300/2) in each product line:
Overhead allocated to Wool Product line = 237150 * $2.20 = $521,730
Overhead allocated to Cotton Product line = 237150 * $2.20 = $521,730
Determination of activity rate for each activity & allocation of overhead Activity Estimated Overhead Cost Activity Base Usage of Activity Base Activity Rate Wool Product Line Cotton Product Line Usage Allocated Costs Usage Allocated Costs Cutting $379,440.00 Machine hours 210800 $1.80 105400 $189,720.00 105400 $189,720.00 Design $664,020.00 Nos of setups 1581 $420.00 1054 $442,680.00 527 $221,340.00 Total $1,043,460.00 $632,400.00 $411,060.00Related Questions
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