(Solution Download) Exercise 17-3 American Fabrics has budgeted overhead costs of \$990,000. It has allocated overhead on

Exercise 17-3

American Fabrics has budgeted overhead costs of \$990,000. 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 \$630,000 is allocated to the design cost pool.

Additional information related to these pools is as follows.

 Wool Cotton Total Machine hours 100,000 100,000 200,000 Number of setups 1,000 500 1,500

Calculate the overhead rates for 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

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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 rates using the traditional approach.

(Round answers to 2 decimal places, e.g.

\$12.25.)

 Overhead rates using the traditional approach \$ per direct labor hour

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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 \$ \$

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