Wilkins Inc. has two types of handbags: standard and custom. The controller has
ID: 2446444 • Letter: W
Question
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 Custonm Direct labor costs Machine hours Setup hours $43,100 1,470 100 $115,000 1,270 370Explanation / Answer
The question is incomplete.Need Overhead cost also.
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Que is 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 $46,100 $117,000
Machine hours 1,300 1,320
Setup hours 110 410
Total estimated overhead costs are $298,600. Overhead cost allocated to the machining activity cost pool is $198,000, and $100,600 is allocated to the machine setup activity cost pool.
Determine the difference in allocation between the two approaches. (Round answers to 0 decimal places, e.g. $1,225.)
Traditional costing
Standard
$
Custom
$
Activity-based costing
Standard
$
Custom
Answer
46,100 + 117,000 = $163,100 total labor costs
$298,600 total overhead costs
Standard
46,100 / 163,100 x 298,600 = $84,399
Custom
117,000 / 163,100 x 298,600 = $214,201
Activity-based costing
1,300 + 1,320 = 2,620 total machine hours
110 + 410 = 520 total setup hours
Standard
1,300 / 2,620 x 198,000 = $98,244 allocated for machine hours
110 / 520 x 100,600 = $21,281 allocated for setups
= $119,525 total allocated overhead
Custom
1,320 / 2,620 x 198,000 = $99,756 allocated for machine hours
410 / 520 x 100,600 = $79,319 allocated for setups
= $179,075 total allocated overhead
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