Wool Cotton Total LINK TO TEXT LINK TO TEXT Wool product lin

Wool

Cotton

Total

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Wool product line

Cotton product line

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Wool product line

Cotton product line

Open Show Work

EcoFabrics has budgeted overhead costs of $1,152,900. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 549,000 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 $439,200 and $713,700 is allocated to the design cost pool. Additional information related to these pools is as follows. Wool Cotton Total Machine hours 122,000 122,000 244,000 Number of setups 1,220 610 1,830

Solution

STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL Activity Total Expected Activity ACTIVITY COST POOL Measures Overheads Activity Rate Cutting MH 439,200 244,000 1.80 Design Setup 713,700 1,830 390.00 Overheads allocated Activity Rate WOOL COTTON Activity OH cost Activity OH cost Cutting 1.8 122000 219600 122000 219600 Design 390 1220 475800 610 237900 Total Overheads 695400 457500 OH Rate as per Traditional ccosting Estimtaed OH 1152900 Divide: Estimated labour hours 549000 OH rate per labour hour 2.1 Overheads allocated Wool (274500 hours @2.10) 576450 Cotton (274500 Hours @2.1) 576450 Total Oh 1152900