Standard Custom Compute the overhead rate using the traditional (plantwide) appr
ID: 2330340 • Letter: S
Question
Standard
Custom
Compute the overhead rate using the traditional (plantwide) approach. (Round answer to 2 decimal places, e.g. 12.25.)
Overhead rate using activity based costing
Difference in allocation between two approaches
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 $ 53,000 $ 100,000 Machine hours 1,270 1,280 Setup hours 104 400Total estimated overhead costs are $ 300,000 . Overhead cost allocated to the machining activity cost pool is $ 200,000 , and $ 100,000 is allocated to the machine setup activity cost pool.
Explanation / Answer
1) Calculation of overhead rate using traditional approach: Overhead rate= Total estimated costs/ Total direct labor costs = 300000/(53000+100000)= 300000/153000= 1.96 Overhead rate= 196.08% 2) Calculation of overhead rate using activity based costing: Machining overhead rate= Machining cost pool/ machine hours = 200000/(1270+1280)= 200000/2550= 78.43 Machining overhead rate= 78.43 Machining setup overhead rate= Machining setup cost pool/ setup hours = 100000/(104+400)= 100000/504= 198.41 Machining setup overhead rate= 198.41 3) Difference in allocation: Traditional costing: Standard= 53000*196.08%= 103922.4 Custom= 100000*196.08%= 196080 Activity based costing: Machining overhea rate: Standard= 1270*78.43= $99606.10 Custom= 1280*78.43= $100390.40 Machining setup overhead rate: Standard= 104*198.41= $20634.64 Custom= 400*198.41= $79364 Total cost as per standard= 99606.10+20634.64= $120240.70 Total cost as per custom= 100390.40+79364= $179754.40
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