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 companyâ€™s operations.
|Direct labor costs||$52,400||$116,000|
estimated overhead costs are $301,800. Overhead cost allocated to the
machining activity cost pool is $195,400, and $106,400 is allocated to
the machine setup activity cost pool.
(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.