Elle Inc. has two types of handbags: standard and custom. The controller has dec

Question

Elle 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 $46,200 $44,500 Machine hours 1,190 1,140 Setup hours 98 400 Total estimated overhead costs are $299,900. Overhead cost allocated to the machining activity cost pool is $197,100, and $102,800 is allocated to the machine setup activity cost pool. Compute the overhead rate using the traditional (plantwide) approach. ________% of direct labor cost?

Explanation / Answer

standard labour costs =46200
custom =44500
machine ours std =1190
custom =1140
set up std =98
custom =400
total estimated costs = 299900
over head allocated =197100 (pool)
machine =102800
traditional approach yields 14.8%

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