Reference no: EM132534200

Dachshund, Inc. produces fancy, high end dog kennels and runs. They have two primary units- a Single model and a Multi Pet model. You are Dachshunds' controller, and you have decided to use a plant-wide overhead rate based on direct labor costs. The president of the company recently 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:

                                   Single Model              Multi Pet Model

Direct labor costs     $75,000                      $150,000

Machine hours            2,000                2,000

Setup hours                 200                     800

Total estimated overhead costs are $450,000. Overhead cost allocated to the machining activity cost pool is $270,000 and $180,000 is allocated to the machine setup activity cost pool.

Question (a) Compute the overhead rate using the traditional (plantwide) approach.

Question (b) Compute the overhead rates using the activity-based costing approach.

Question (c) Determine the difference in allocation between the two approaches.