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.

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.

 

 

E4-1 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	$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.

(c) Determine the difference in allocation between the two approaches.

 

 

TUTORIAL PREVIEW

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

	Estimated overhead	Predetermined overhead rate
	Direct labor costs

File name: E4-1 Wilkins Inc.xls File type: .xls  PRICE: $5