Compute the overhead rates using the activity-based costing approach. Machining Machine setup S per machine hour per setup hour

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Compute the overhead rates using the activity-based costing approach.
Machining
Machine setup
eTextbook and Media
Standard
$
Traditional costing
Custom
$
Determine the difference in allocation between the two approaches.
Standard
Activity-based costing
Custom
per machine hour
GA
per setup hour
Transcribed Image Text:Compute the overhead rates using the activity-based costing approach. Machining Machine setup eTextbook and Media Standard $ Traditional costing Custom $ Determine the difference in allocation between the two approaches. Standard Activity-based costing Custom per machine hour GA per setup hour
Vaughn 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 (machine hours) and machine setup (number of setups). The total estimated
machine hours is 2,700, and the total estimated number of setups is 510. Presented below is information related to the company's
operations.
Direct labor costs
Machine hours
Number of setups
Standard
$50,000
1,500
90
Custom
$100,000
1,200
Predetermined overhead rate
420
Total estimated overhead costs are $291,000. Overhead cost allocated to the machining activity cost pool is $189,000, and $102,000
is allocated to the machine setup activity cost pool.
Compute the overhead rate using the traditional (plantwide) approach information related to each product's use of cost drivers.
(Round answer to 0 decimal places, e.g. 12.)
% of direct labor cost.
Transcribed Image Text:Vaughn 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 (machine hours) and machine setup (number of setups). The total estimated machine hours is 2,700, and the total estimated number of setups is 510. Presented below is information related to the company's operations. Direct labor costs Machine hours Number of setups Standard $50,000 1,500 90 Custom $100,000 1,200 Predetermined overhead rate 420 Total estimated overhead costs are $291,000. Overhead cost allocated to the machining activity cost pool is $189,000, and $102,000 is allocated to the machine setup activity cost pool. Compute the overhead rate using the traditional (plantwide) approach information related to each product's use of cost drivers. (Round answer to 0 decimal places, e.g. 12.) % of direct labor cost.
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