QUESTION:

Alexander Inc. manufactures two products: Basic and Delux hoodies. The manufacturing process involves two activities: cutting and sewing. Expected overhead costs and cost drivers are as follows:

	Cutting	Sewing
Overhead costs	$570,000	$675,000
Machine hours	950,000	114,000
Direct labour hours	47,250	15,000

The company has always used the traditional costing method and a plantwide overhead rate, using direct labour hours as their cost driver.

Currently management is considering switching to an activity based costing system. If they make the change then Cutting will use machine hours as the cost driver and Sewing will use direct labour hours as the cost driver.

What is the company's current plantwide overhead rate per direct labour hour? Be sure to apply the entry rules!

One (1) hoodie uses the following actuals:

	Cutting	Sewing
Machine hours	3	1
Direct labour hours	1	2

What is the total overhead costs allocated to one (1) hoodie if the company continues to use the plantwide overhead rate?

If the company switched to an activity-based costing system, what would be the activity-based overhead rate for Cutting?

If the company switched to an activity-based costing system, what would be the activity-based overhead rate for Sewing?

One (1) hoodie uses the following actuals:

	Cutting	Sewing
Machine hours	3	1
Direct labour hours	1	2

What is the total overhead costs allocated to one (1) hoodie if the company switches to an activity-based costing system?

HINT: to calculate the total overhead costs allocated you must add together the allocation for both Cutting and Sewing activities!