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

by | Nov 30, 2023 | questions

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.

Direct labor cost for standard are $55,500, machine hours are 1,150, and setup hours are 100. For custom, the direct labor costs are 97,200, machine hours are 1,270, and setup hours are 380.

.:.
Total estimated overhead costs are $304,000. Overhead cost allocated to the machining activity cost pool is $195300, and $108,700 is allocated to the machine setup activity cost pool.
Instructions
(a) Compute the overhead rate using the traditional (plantwide) approach. The predetermined overhead rate is _____% of direct labor cost
(b) Compute the overhead rates using the activity-based costing approach.
(c) Determine the difference in allocation between the two approaches.

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