Two types of handbags, Wilkins Inc. has two types of

Two types of handbags

Reference no: EM13766940

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	$53,200	$119,000
Machine hours	1,410	1,180
Setup hours	110	410

Total estimated overhead costs are $298,800. Overhead cost allocated to the machining activity cost pool is $199,800, and $99,000 is allocated to the machine setup activity cost pool.

Instructions:

a) Compute the overhead rate using the traditional (plant wide) approach.

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

c) Determine the difference in allocation between the two approaches

Reference no: EM13766940

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