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 | | $49,700 | | $117,000 |
| Machine hours | | 1,340 | | 1,320 |
| Setup hours | | 95 | | 420 |
Total estimated overhead costs are $297,300. Overhead cost allocated to the machining activity cost pool is $196,800, and $100,500 is allocated to the machine setup activity cost pool.