Question

Question 1 Coronado 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. Direct labor costs Machine hours Setup hours Standard $50,000 1,200 90 Custom $100,000 1,200 420 Total estimated overhead costs are $299,100. Overhead cost allocated to the machining activity cost pool is $192,000, and $107,100 is allocated to the machine setup activity cost pool. Compute the overhead rate using the traditional (plantwide) approach. (Round answer to 2 decimal places, e.g. 12.25.) Predetermined overhead rate % of direct labor cost Compute the overhead rates using the activity-based costing approach. Machining per machine hour Machine setups per setup hour Determine the difference in allocation between the two approaches. Traditional costing Standard Custom Activity-based costing Standard Custom

Answer 1

	Standard	Custom
Direct labor cost	50000	100000
Machine hours	1200	1200
Set up Hours	90	420
Predetermined rate = Estimated overheads/Estimated labor cost	199.40%	of labor cost
Using ABC, Overhead rate = Estimated overhead/Estimated Driver
Machining	80	per machine hour
Machine Set up	210	per setup hour
Traditional
Standard	99,700
Custom	199,400
ABC
Standard	114,900
Custom	184,200

А B 1 Standard 50000 1200 90 Custom 100000 1200 420 2 Direct labor cost 3 Machine hours 4. Set up Hours 5 6 Predetermined rate = Estimated overheads/Estimated labor cost 7 8 Using ABC, Overhead rate = Estimated overhead/Estimated Driver 9 Machining 10 Machine Set up =299100/150000 of labor cost =192000/(B3+C3) per machine hour =107100/(B4+C4) per setup hour 11 =B2*B6 =C2*B6 12 Traditional 13 Standard 14 Custom 15 16 ABC 17 Standard 18 Custom =(B3*B9+B4*B10) =(C3*B9+C4*B10)