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OneFabric produces tow products: wool and cotton. Company uses direct labor hours to allocate overhead cost to its products. The company decided to experiment with
OneFabric produces tow products: wool and cotton. Company uses direct labor hours to allocate overhead cost to its products. The company decided to experiment with activity-based costing system and has created two activity cost pools and related activity cost drivers. These two cost 6 pools are Cutting (cost driver is machine hours) and Design (cost driver is number of setups). 7 Additional information is provided below: Wool Cotton Total Overhead cost per year 9 Machine hours 1,560 1,950 3,510 Cutting 32,500 10 Number of setups 3,150 2,835 5,985 Design 39,000 11 Direct labor hours 8,580 5,900 14,480 Total 71,500 12 13 1) Determine the amount of overhead allocated to each product using traditional costing 14 system and direct labor hours as allocation base 162) Determine the amount of overhead allocated to each product using ABC 17 system 18 19 3) By what amount traditional system undercost or overcost wool product? 20 21 Round to 2 decimals
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