Question

Marigold 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		1,200		1,200
Setup hours		90		390

Total estimated overhead costs are $297,600. Overhead cost allocated to the machining activity cost pool is $192,000, and $105,600 is allocated to the machine setup activity cost pool.

(a)

New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is incorrect.

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

Predetermined overhead rate

enter the predetermined overhead rate as a percentage of direct labor cost

% of direct labor cost

Compute the overhead rate using activity based approach

Machine $ per hour

Machine set up per hour $

Lastly determine the difference between the two approaches

Traditonal costing

standard $

custom $

Activity based costing

standard

custom

Answer 1