Cullumber Inc. makes two types of handbags: standard and custom. The controller has decided to use a plant-wide overhead rate based on direct labour 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 (machine hours) and machine set-up (number of set-ups). The total estimated machine hours is 1,500, and the total estimated number of setups is 500. Presented below is information related to the company's operations. Standard Custom Direct labour costs $50,000 $100,000 500 1,000 Machine hours Set-up hours 100 400 Total estimated overhead costs are $277,500. The overhead cost allocated to the machining activity cost pool is $169,500, and $108,000 is allocated to the machine set-up activity cost pool. (c) Your answer is incorrect. Determine the difference in allocation between the two approaches. Traditional costing Activity-based costing Difference Standard $ | $ 59400 $ $ 5600 Custom $ 200,000 $ LA 135600 $ (5600) Save for Later Attempts: 1 of 2 used Submit Answer
