Wilkins Inc. has two types of handbags standard and custom Answer

Wilkins Inc. has two types of handbags standard and custom Answer

Wilkins Inc. has two types of handbags_standard and custom_Answer

Wilkins Inc. has two types of handbags: standard and custom. The controller has decided to use a plantwide overhead rate based on direct labor costs. The president has heard of activity-based costing and wants to see how the results would differ if this system were used. Two activity cost pools were developed: machining and machine setup. Presented below is information related to the company’s operations.

Standard Custom

Direct labor costs $51,600 $1,11,000
Machine hours 1,300 1,490
Setup hours 110 400

Total estimated overhead costs are $308,500. Overhead cost allocated to the machining activity cost pool is $197,900, and $110,600 is allocated to the machine setup activity cost pool.

(a) Compute the overhead rate using the traditional (plant-wide) approach.
(b) Compute the overhead rates using the activity-based costing approach.
Overhead rates using the activity-based costing approach:
(c) Determine the difference in allocation between the two approaches.

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