Solution-Determine difference in allocation between two

Determine difference in allocation between two approaches

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Question - Carrens 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	$50,000	$100,000
Machine hours	1,000	1,000
Setup hours	100	400

Total estimated overhead costs are $270,000. Overhead cost allocated to the machining activity cost pool is $170,000, and $100,000 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.

Reference no: EM132526225

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Determine difference in allocation between two approaches

Reference no: EM132526225

Reference no: EM132526225

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