Exercise 17-1 Wilkins Inc. has two types of handbags: standard and custom. The c

Question

Exercise 17-1 Wilkins Inc. has two types of handbags: standard and custom. The controller has decided to use a plant wide 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 $53,000 $108,000 Machine hours 1,190 1,500 Setup hours 110 440 Total estimated overhead costs are $308,800. Overhead cost allocated to the machining activity cost pool is $196,400, and $112,400 is allocated to the machine setup activity cost pool. (a) Compute the overhead rate using the traditional (plant wide) approach. (Round answers to 2 decimal places, e.g. 12.25%.) Predetermined overhead rate % of direct labor cost LINK TO TEXT LINK TO TEXT By accessing this Question Assistance, you will learn while you earn points based on the Point Potential Policy set by your instructor. Attempts: 0 of 3 used SAVE FOR LATER SUBMIT ANSWER

Explanation / Answer

a) Predetermined overhead rate based on direct labor costs = Overhead / Direct labor costs

= $308,800 / ($53,000 + $108,000) = 191.80% of Direct labor costs.

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