WoolCorp buys sheep’s wool from farmers. The company began operations in January of this year, and is making decisions on product offerings, pricing, and vendors. The company is also examining its method of assigning overhead to products. You’ve just been hired as a production manager at WoolCorp. Currently WoolCorp makes two products: (1) raw, clean wool to be used as stuffing or insulation and (2) wool yarn for use in the textile industry. The company would like you to evaluate its costing methods for its raw wool and wool yarn. Single Plantwide Rate WoolCorp is currently using the single plantwide factory overhead rate method, which uses a predetermined overhead rate based on an estimated allocation base such as direct labor hours or machine hours. The rate is computed as follows: Single Plantwide Factory Overhead Rate = (Total Budgeted Factory Overhead) ÷ (Total Budgeted Plantwide Allocation Base) WoolCorp has been using combing machine hours as its allocation base. The company would like to consider activity-based costing. In order to understand their current system better, you evaluate WoolCorp’s current method of costing for raw wool and wool yarn. The production staff has compiled the following information for you on the production of 500 pounds of either raw wool or wool yarn: Factory Overhead Type Budgeted Factory Overhead Sorting $25,600 Cleaning 38,400 Combing 1,200 Raw Wool Wool Yarn Hours of combing machine use required 80 20 In the following table, use combing machine hours as the allocation base for assigning overhead costs to each product. When required, round your answers to the nearest dollar. Single Plantwide Factory Overhead Rate: $fill in the blank 600937f93069fa1_1 per combing hour Raw Wool Wool Yarn Allocated factory overhead cost $fill in the blank 600937f93069fa1_2 $fill in the blank 600937f93069fa1_3
Mastery Problem: Activity-Based Costing
WoolCorp
WoolCorp buys sheep’s wool from farmers. The company began operations in January of this year, and is making decisions on product offerings, pricing, and vendors. The company is also examining its method of assigning
Currently WoolCorp makes two products: (1) raw, clean wool to be used as stuffing or insulation and (2) wool yarn for use in the textile industry.
The company would like you to evaluate its costing methods for its raw wool and wool yarn.
Single Plantwide Rate
WoolCorp is currently using the single plantwide factory overhead rate method, which uses a predetermined overhead rate based on an estimated allocation base such as direct labor hours or machine hours. The rate is computed as follows:
Single Plantwide Factory Overhead Rate = (Total Budgeted Factory Overhead) ÷ (Total Budgeted Plantwide Allocation Base)
WoolCorp has been using combing machine hours as its allocation base.
The company would like to consider activity-based costing. In order to understand their current system better, you evaluate WoolCorp’s current method of costing for raw wool and wool yarn. The production staff has compiled the following information for you on the production of 500 pounds of either raw wool or wool yarn:
Factory Overhead Type |
Budgeted Factory Overhead |
| Sorting | $25,600 |
| Cleaning | 38,400 |
| Combing | 1,200 |
| Raw Wool | Wool Yarn | |
| Hours of combing machine use required | 80 | 20 |
In the following table, use combing machine hours as the allocation base for assigning overhead costs to each product. When required, round your answers to the nearest dollar.
Single Plantwide Factory Overhead Rate: $fill in the blank 600937f93069fa1_1 per combing hour
| Raw Wool | Wool Yarn | |
| Allocated |
$fill in the blank 600937f93069fa1_2 | $fill in the blank 600937f93069fa1_3 |
Activity-Based Costing
In order to compare WoolCorp’s current method with activity-based costing, you interview the production staff and compile the following information, which relates to the costs for raw wool and wool yarn.
| Type of Cost | Activity Base | Total Cost |
| Sorting | Hours of sorting | $25,600 |
| Cleaning | Units of cleaning machine power | 38,400 |
| Combing | Hours of combing machine use | 1,200 |
| Raw Wool | Wool Yarn | |
| Hours of sorting required | 1,000 | 4,000 |
| Units of cleaning machine power required | 1,920 | 4,480 |
| Hours of combing machine use required | 80 | 20 |
In the following table, compute and enter the activity rate for each of the three activities. If required, round your answers to the nearest cent.
| Activity | Activity Rate | |
| Sorting | $fill in the blank 09fb69053fe303c_1 | per sorting hour |
| Cleaning | $fill in the blank 09fb69053fe303c_2 | per unit of cleaning machine power |
| Combing | $fill in the blank 09fb69053fe303c_3 | per hour of combing machine use |
In the following table, allocate the costs of sorting, cleaning, and combing based on the rates of activity consumed by each product’s process. When required, round your answers to the nearest dollar.
| Raw Wool | Wool Yarn | |
| Sorting cost | $fill in the blank 09fb69053fe303c_4 | $fill in the blank 09fb69053fe303c_5 |
| Cleaning cost | fill in the blank 09fb69053fe303c_6 | fill in the blank 09fb69053fe303c_7 |
| Combing cost | fill in the blank 09fb69053fe303c_8 | fill in the blank 09fb69053fe303c_9 |
| Total cost | $fill in the blank 09fb69053fe303c_10 | $fill in the blank 09fb69053fe303c_11 |
Final Question
After reviewing your work on the Single Plantwide Rate and Activity-Based Costing panels, which of the costing method would you recommend to WoolCorp, and why?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
