Exercise 17-1

Exercise 17-1



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.

Total estimated overhead costs are $298,600. Overhead cost allocated to the machining activity cost pool is $196,100, and $102,500 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.)

(a)



Compute the overhead rate using the traditional (plantwide) approach. (Round answers to 2 decimal places, e.g. 12.25%.)


Predetermined overhead rate

% of direct labor cost