Question

Elle Inc. makes two types of handbags: standard and custom. The controller has decided to use a plant-wide overhead rate baseDetermine the difference in allocation between the two approaches. (Enter negative answers using either a negative sign prece

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Answer #1
Traditional costing Activity-based costing Difference
Standard 82500 71300 11200
Custom 165000 176200 -11200
Workings:
Activity based costing:
Activity rates
Machining activity 109 =163500/(500+1000)
Machine set-up activity 168 =84000/(100+400)
Standard: Costs allocated
Machining activity 54500 =500*109
Machine set-up activity 16800 =100*168
Total 71300
Custom: Costs allocated
Machining activity 109000 =1000*109
Machine set-up activity 67200 =400*168
Total 176200
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