Explore BrainMass

Explore BrainMass

    Traditional Versus Activity-Based Costing

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Mathews 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. Presented below is the information related to the company's operations.

    Direct labor costs $50,000 $100,000
    Machine hours 1,000 1,000
    Setup hours 100 400
    Total estimated overhead costs are $300,000. Overhead cost allocated to the machining activity cost pool is $200,000, and $100,000 is allocated to the machine setup activity cost pool.
    Instructions
    A) 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.

    How to set up and calculate ?

    © BrainMass Inc. brainmass.com June 4, 2020, 1:53 am ad1c9bdddf
    https://brainmass.com/business/accounting/traditional-versus-activity-based-costing-425895

    Solution Summary

    This solution illustrates how to compute the overhead allocated to two products under the traditional and activity-based approaches.

    $2.19

    ADVERTISEMENT