Activity-Based Costing:

1. E4-1B

Exercises to ,. Data\" E4-lB Celia 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. Pre- sented below is information related to the company's operations. Standard Custom Direct labor costs $60,000 $120,000 Machine hours 1,500 1,500 Setup hours 100 500 Total estimated overhead costs are $342,000. Overhead cost allocated to the machining activity cost pool is $222,000, and $120,000 is allocated to the machine setup activity cost pool. Instructions (3.) Compute the overhead rate using the traditional (plantwide) approach. (b) Compute the overhead rates using the activity-based costing approach. (c) Determine the difference in allocation between the two approaches. Assign overhead using traditional costing and ABC. {LD 1, 4)