Question 3
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 $50,500 $118,000
Machine hours 1,480 1,450
Setup hours 100 420
Total estimated overhead costs are $298,500. Overhead cost allocated to the machining activity cost pool is $198,900, and $99,600 is allocated to the machine setup activity cost pool.