Help T-Mobile 7:15 PM edugenwileyplus.com Exercise 17-3 EcoFabrics has budgeted

Question

Help T-Mobile 7:15 PM edugenwileyplus.com Exercise 17-3 EcoFabrics has budgeted overhead costs of $1,001,700. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 477,000 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 $381,600 and $620,100 is allocated to the design cost pool. Additional information related to these pools is as follows. WeelCotton Total 106,000 106,000 212,000 530 ,590 Number of setups Calculate the overhead rate using activity based costing. (Round answers to 2 decimal places, e.g. 12.25.) Overhead rates for activity-based per machine hour Design 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 s Calculate the overhead rate using traditional approach. (Round answer to 2 decimal places, e.g. 12.25.) Overhead rates using the traditional approach per direct labor hour What amount of overhead would be allocated to the wool and cotton product lines using the traditional approach, assuming direct labor hours were incurred evenly between the wool and cotton?

Explanation / Answer

Overhead rate using activiry based costing Overheads Cost driver Overhead rate Cutting                      381,600 212000 Machine hours 1.8 per machine hour Design                      620,100 1590 setups 390 per setup Wool product line Cotton poduct line Cutting =106000 * 1.8 =106000 * 1.8 Design = 1060 * 390 = 530 * 390 $604,200.00 $397,500.00 Overhead rate using traditional approach Overheads Direct labour hours Overhead rate                   1,001,700                               477,000 2.1 per direct labour hour Wool product line Cotton poduct line Direct labour hours 238500 238500 Overhead rate 2.1 2.1 Overheads allocated $500,850.00 $500,850.00

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