E4-1 wilkins inc. has two types of handbags: standard and custom.

E4-1 Wilkins 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 information related to the company’s operations.





Direct labor costs



Machine hours



Setup hours




Total estimated overhead costs are $270,000 Overhead cost allocated to the machining activity cost pool is $170,000  and $100,000  is allocated to the machine setup activity cost pool.



(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.