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Senkowski Ltd. cost information: Activity-Purchasing, Allocation
Base -Purchase orders, Volume of Activity 30,000, Overhead costs $150,000.
Activity-Receiving, Allocation base Shipments received, Volume of Activity
15,000, Overhead Cost 60,000. Activity-Machine setups, Allocation Base-Setups,
Volume of Activity 2,500, Overhead costs 200,000. Activity- Quality control,
Allocation base Inspections, Volume of Activity 18,000, Overhead costs 90,000.
Direct materials are $15 per unit for luxury handbags and $11 per unit for
deluxe handbags. There were 12, 500 direct labor hours, each of which was
charged to inventory at $18 per hour. A. Management is trying to decide between
using the traditional allocation method based on direct labor hours and using
activity-based costing. Calculate the overhead rates for each method. B. One
particular batch of 40 luxury handbags had the following specifications: direct
labor hours 8, purchase orders 4, shipments received 3, setups 2, inspections
12. Calculate the overhead to be allocated to the bags under the traditional
and activity-based costing techniques. C.Which costing method do you think is better
for the company? Why?