Standard Custom (a) SHOW SOLUTION SHOW ANSWER LINK TO TEXT LINK TO TEXT (b) Wilk

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(b)

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 $55,200 $117,000 Machine hours 1,340 1,370 Setup hours 98 420
Total estimated overhead costs are $298,600. Overhead cost allocated to the machining activity cost pool is $198,900, and $99,700 is allocated to the machine setup activity cost pool.

Explanation / Answer

Predetermined overhead rate = Estimated overhead /estimated direct labor cost

                                                      = 298,600 / (55200+117000)

                                                     = 298,600 / 172,200

                                                      = 1.7340 or 173.40%

b)

Machining 198,900 / (1340+1370) = 198900/2710 $ 73.39 per hour Machine set up 99700 /(98+420) = 99700/518 $ 192.47 per set up

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