EcoFabrics has budgeted overhead costs of $1,030,050. It has allocated overhead

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 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 Design per machine hour per setup LINK TO TEXT LINK TO TEXT Determine the amount of overhead allocated to the wool product line and the cotton product line using activity-based costing Wool product lineCotton product line Overhead Allocated

Explanation / Answer

Answer 1

Overhead rates for activity based costing = Overhead Cost / Cost driver

Answer 2

Overhead allocation to products using activity based costing

Overhead rate using tratiotional approach = Budgeted overhead costs / Estimated direct labour

= $1,030,050 / 490 ,500 direct labour hours = $2.10 per direct labour hour

Answer 3

Overhead allocation to products using tratiotional approach

Working Amount ($) Cutting $392,400 / 218,000 machine hours $1.80 per machine hour Design $637,650 / 1,635 setups $390 per setup

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