Exercise 17-3 (Part Level Submission) EcoFabrics has budgeted overhead costs of

Question

Exercise 17-3 (Part Level Submission) EcoFabrics has budgeted overhead costs of $1,039,500. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 495,000 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 is396,000 and $643,500 is allocated to the design cost pool. Additional information related to these pools is as follows. Wool Cotton Total 110,000 110,000 220,000 hours Number of setups 1,100 550 1,650 (a1) 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 per machine hour Design per setup (a2) Determine the amount of overhead allocated to the wool product line and the cotton product line using activity-based costing Wool product lineCotton uct line Overnead Allocated b1) Calculate the overhead rate using traditional approach. (Round answer to 2 decimal places, e.g. 12.25.) Overhead rates using the traditional approach s (b2) 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? Wool product line Cotton product line Overhead Allocated

Explanation / Answer

Plantwide OH Rate Basis DLH Particulars Standard Custom Total Direct Labor Hours 495000 Machine Hours 110000 110000 220000 No of Setups 1100 550 1650 Estimated OH Cost 1039500 Activity Cost Pools: Cost Cutting Cost Pool 396000 Design Cost Pool 643500 1039500 A1 Activity Based Costing: Activity Cost Pools: Cost Activity Driver Total Driver Cost Per Driver Cutting Cost Pool 396000 Machine Hours 220000 1.800 Per MH Design Cost Pool 643500 No of Setups 1650 390.00 Per Setup 1039500 A2 Activity Based Costing: Cutting Cost Pool Design Cost Pool Total Allocation Wool 198000 429000 627000 Cotton 198000 214500 412500 396000 643500 1039500 Activity Based Costing: Wool Cotton 627000 412500 B1 Plant Wide OH Rate: Estimated OH Cost 1039500 Direct Labor Hours 495000 Plantwide OH Rate Per DLH 2.10 (1039500/495000) B2 Wool Cotton Direct Labor Hours 247500 247500 (DLH Evenly Occurred) Plantwide OH Rate Per DLH 2.10 2.10 Overhead Allocated 519750 519750

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