Question
EcoFabrics has budgeted overhead costs of $1,048,950. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor
EcoFabrics has budgeted overhead costs of $1,048,950. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be499,500for 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 $399,600and $649,350is allocated to the design cost pool. Additional information related to these pools is as follows.
Wool Cotton Total
Machine hours111,000. 111,000. 222,000. Number of setups1,110. 555. 1,665
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?
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