Plant-Wide Overhead Rate Assignment | Top Universities

Elle Inc. makes two types of handbags: standard and custom. The controller has decided to use a plant-wide overhead rate based on direct labour 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 set-up.

Presented below is information related to the company's operations. Direct labour costs Machine hours Set-up hours Standard $50,000 500 100 Custom $100,000 1,000 400 Total estimated overhead costs are $247,500. The overhead cost allocated to the machining activity cost pool is $163,500, and $84,000 is allocated to the machine set-up activity cost pool. Calculate the overhead rate using the traditional (plant-wide) approach. Predetermined overhead rate % of direct labour cost Calculate the overhead rate using the activity-based costing approach. Cost Pool Overhead Rate Machining per machine hour Machine set-up per set-up hour Determine the difference in allocation between the two approaches. (Enter negative answers using either a negative sign preceding the number e.g. -2,945 or parentheses e.g. (2,945).) Traditional costing (A) Activity-based costing (B) Difference (A) – (B) Standard Custom. Get Accounting homework help today