a. Determine the amount of overhead allocated to the wool product line and the c

Question

a. Determine the amount of overhead allocated to the wool product line and the cotton product line using activity-based costing.

Wool product line

        Cotton product line

$

b. Calculate the overhead rate using traditional approach. (Round answer to 2 decimal places, e.g. 12.25.)

Wool product line

     Cotton product line

$

Wool product line

        Cotton product line

Overhead Allocated

   $

$

Exercise 17-3 (Part Level Submission) EcoFabrics has budgeted overhead costs of $1,058,400. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 504,000 forthe 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 $403,200 and $655,200 is allocated to the design cost pool. Additional information related to these pools is as follows. Wool Cotton Total Machine hours 112,000 112,000 224,000 Number of setups 1,120 560 1,680

Explanation / Answer

ReqA. Activity Overheads Total cost drivers per year Activity cost per driver Cutting cost 403200 224000 machine hours $1.80 per Machine hour Design Cost 655200 1680 setups $390 Per setup Overheads Allocation: WOOL PRODUCT LINE COTTON PRODUCT LINE Machine horus 112000 112000 Number of setups 1120 560 Cutting Cost Activity (1.80 per MH) 201600 201600 Design Cost ($ 390 per setup) 436800 218400 Total Overheads 638400 420000 Req B. Total overheads of plant = $1058,400 Total Labour Hours                  504,000 hours Overhead rate under Traditional costing = Total overheads of plant / total labour hours ( 1058,400 /504,000) = $ 2.10 per labour hours ReqC: Overhead allocation under Traditional costing WOOL PRODUCT LINE COTTON PRODUCT LINE labour hours 252000 252000 (Given as evenly distributed) Overhead rate per labour hour 2.1 2.1 Total Overhead allocated 529200 529200

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