ACC 561 Week 4 Exercises 15-5, 16-3, 17-1

exercise_17-1.docx

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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.

	Standard	Custom
Direct labor costs	$58,500	$111,000
Machine hours	1,240	1,230
Setup hours	100	440

Total estimated overhead costs are $302,200. Overhead cost allocated to the machining activity cost pool is $197,100, and $105,100 is allocated to the machine setup activity cost pool.

Collapse question part

(a)

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

Predetermined overhead rate

Is ______% of direct labor cost

a. Predetermined overhead rate % of Direct Labor cost?

b. Overhead allocated to Machining activity cost pool?

c. Compute the Overhead rates using the activity-based costing approach. (Round answers to 2 decimals places, e.g. $12.25.)

Machining ---------------? Setup----------------?

d. Determine the difference in allocation between the two approaches:

e. Traditional costing: Standard:--------------? Custom:---------------?

Activity-based-costing: Standard: --------------? Custom:----------------?