# Exercise 4-3 (Part Level Submission) American Fabrics has budgeted overhead costs of \$1,043,460. It

Exercise 4-3 (Part Level Submission) American Fabrics has budgeted overhead costs of \$1,043,460. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 474,300 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 \$379,440 and \$664,020 is allocated to the design cost pool. Additional information related to these pools is as follows.

Wool

Cotton

Total Machine hours 105,400 105,400 210,800 Number of setups 1,054 527 1,581

(a) Your answer is correct. Calculate the overhead rate using activity based costing and then calculate if the traditional approach were used. (Round answers to 2 decimal places, e.g. \$12.25.) Overhead rates for activity-based costing Cutting \$

1.8 per machine hour Design \$

420 per setup Overhead rates using the traditional approach \$

2.2 per direct labor hour Please guide me and write out the straight out answer for each box and how did you solve it so i can study it.

(b) (1) 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 \$

\$

Wool product line

Cotton product line \$
(2) 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 \$

\$