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 |
|
$47,500 |
|
$119,000 |
| Machine hours |
|
1,490 |
|
1,330 |
| Setup hours |
|
110 |
|
380 |
Total estimated overhead costs are $299,400. Overhead cost allocated to the machining activity cost pool is $196,200, and $103,200 is allocated to the machine setup activity cost pool.
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