Question 1

EcoFabrics has budgeted overhead costs of $963,900. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 459,000 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 is $367,200 and $596,700 is allocated to the design cost pool. Additional information related to these pools is as follows.

		Wool		Cotton		Total
Machine hours		102,000		102,000		204,000
Number of setups		1,020		510		1,530

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

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		$		$

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

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		$		$