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Local Fabric produces tow products: wool and cotton. Company uses direct labor hours to allocate...

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Accounting

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Local Fabric produces tow products: wool and cotton. Company uses direct labor hours to allocate overhead cost to its products. The company decided to experiment with activity-based costing system 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). Additional information is provided below: Cotton Total Overhead cost per year Machine hours Number of setups Direct labor hours Wool 800 3,150 5,000 1,000 2,835 8,200 1,800 5,985 13,200 Cutting Design Total 27,000 32,400 59,400 1) Determine the amount of overhead allocated to each product using traditional costing system and direct labor hours as allocation base 2) Determine the amount of overhead allocated to each product using ABC system 3) By what amount traditional system undercost or overcost wool product? Round to 2 decimals

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