American Fabrics has budgeted overhead costs of $990,000. It has allocated overh

Question

American Fabrics has budgeted overhead costs of $990,000. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 450,000 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 $360,000 and $630,000 is allocated to the design cost pool. Additional information related to these pools is as follows.

Calculate the overhead rates for activity-based costing using the traditional approach. (Round answers to 2 decimal places, e.g. $12.25.)

I was able to get per machine hour but I keep getting persetup and per direct labor hour wrong!! please help!!!

Wool Cotton Total Machine hours 100,000 100,000 200,000 Number of setups 1,000 500 1,500 American Fabrics has budgeted overhead costs of $990,000. It has allocated overhead on a plant wide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 450,000 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 $360,000 and $630,000 is allocated to the design cost pool. Additional information related to these pools is as follows. Calculate the overhead rates for activity-based costing using the traditional approach. (Round answers to 2 decimal places, e.g. $12.25.)

Explanation / Answer

Cutting uses machine hrs to apply overhead, and Design uses setups.

Cutting - OH 360,000 / 200,000 MHrs = 1.80 per MHr

Design - OH 630,000 / 1500 setups = 420 per setup

Wool - 100,000 MHr x 1.8 = 180,000 + 420,000 (1,000 SU x 420) = 600,000

Cotton - Same, 180000 + 210,000 (500 x 420 )= 390000

Total OH Applied = $990000

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.