Question
Milano Company is a manufacturing firm that currently uses traditional costing with machine hours as the allocation base. The company is determining if they should
Milano Company is a manufacturing firm that currently uses traditional costing with machine hours as the allocation base. The company is determining if they should implement activity-based costing and has identified the potential activity areas along with the expected activity for its' two high-end product lines: Boots and Purses.
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| Expected Activity | |
Activity | Overhead Cost | Allocation Base | Boots | Purses |
Design | $3,000,000 | Design Hours | 100,000 | 50,000 |
Production | $1,000,000 | Machine Hours | 20,000 | 30,000 |
Finishing | $400,000 | Labour Hours | 5,000 | 3,000 |
During the year, actual activity was recorded as follows:
Activity | Boots | Purses |
Design Hours | 93,000 | 55,000 |
Machine Hours | 19,800 | 32,000 |
Labour Hours | 5,500 | 3,200 |
Compute the amount of overhead allocated to each product line under activity-based costing. Show your calculations.
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