Reference no: EM132504297

Question - Celia Inc. has two types of handbags: standard and custom. The controller has decided to use a plant-wide 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 $60,000 $120,000 Machine hours 1,500 1,500 Setup hours 100 500 Total estimated overhead costs are $342,000. Overhead cost allocated to the machining activity cost pool is $222,000, and $120,000 is allocated to the machine setup activity cost pool.

Instructions -

(a) Compute the overhead rate using the traditional (plantwide) approach.

(b) Compute the overhead rates using the activity-based costing approach.