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Traditional Versus ABC Costing Methods: Profit Impact

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Colt Inc. has two types of handbags, standard and custom. The controller has decided to use a plantwide overhead rate (DL costs). The president wants to see what activity-based costing results might be. Estimated overhead costs are $270,000. Machine pool is $170,000 and Setup pool is $100,000. Compute overhead rates under both methods. Determine the differences.

products sales revenue
440X $200,000.00
137Y $160,000.00
249S $80,000.00

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Solution Summary

Computations done in excel to give the student a template for future problems and permit views of formula used. Second problem discussion is supported by a chart illustrating how the different methods impacted profits.

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