Question

(traditional UUSUJ - Upelating MCMC (ULUNUI CUL). (UU U U U UIJ.) (d) Provide a rationale as to why the costs for Product 540X are approximately the same using either the traditional or activity-based costing system. E17-3 EcoFabrics has budgeted overhead costs of $945,000. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 450,000 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 $360,000, and $585,000 is allocated to the design cost pool. Additional information related to these pools is as follows. Wool 100,000 1,000 Cotton 100,000 Machine hours Number of setups Total 200,000 1,500 500 Instructions (a) Determine the amount of overhead allocated to the wool product line and the cotton product line using activity-based costing.

please solve in excel/table format if possible. thank you.

Answer 1

a) Amount of overhead allocated using activity based costing

		Wool product line	Cotton product line
Cutting cost	360000/200000 = 1.80 per MH	180000	180000
Setup	585000/1500 = 390 per setup	390000	195000
Total overhead cost		570000	375000

b) Overhead allocated using traditional costing

	Wool product line	Cotton product line
Overhead cost	945000/2 = 472500	472500

Comparision

	ABC Costing	Traditional costing
Wool product line	570000	472500
Cotton product line	375000	472500