Exercise 17-3

EcoFabrics has budgeted overhead costs of $973,350. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be463,500for 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 $370,800and $602,550is allocated to the design cost pool. Additional information related to these pools is as follows.

Wool

Cotton

Total

Machine hours103,000103,000206,000Number of setups1,0305151,545

Calculate the overhead rate using activity based costing.(Round answers to 2 decimal places, e.g. 12.25.)

Overhead rates for activity-based costingCutting$

per machine hourDesign$

per setup

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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

Overhead Allocated$

$

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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

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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$

$