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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.

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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