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Wilkins Inc

Price: $1.99


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   50,000  100,000
Machine hours   1,000  1,000
Setup hours   100  400

Total estimated overhead costs are $270,000. Overhead cost allocated to the machining activity
cost pool is $170,000, and $100,000 is allocated to the machine setup activity cost pool.

Instructions
(a) Compute the overhead rate using the traditional (plantwide) approach.
(b) Compute the overhead rates using the activity-based costing approach.
(c) Determine the difference in allocation between the two approaches.

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