Question

The following cost information is available for Senkowski Ltd.:


Direct materials are $15 per unit for luxury handbags and $11 per unit for deluxe handbags. There were 12,500 direct labor hours, each of which was charged to inventory at $18 per hour.

Required
A. Management is trying to decide between using the traditional allocation method based on direct labor hours or activity-based costing. Calculate the overhead rates based on each method.
B. One particular batch of 40 luxury handbags had the following specifications:
Direct labor hours .......... 8
Purchase orders ........... 4
Shipments received ........ 3
Setups ............. 2
Inspections ........... 12
Calculate the overhead to be allocated to the bags under traditional and activity-based costing techniques.
C. Which costing method do you think is better for the company?Why?


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  • CreatedMarch 11, 2015
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