Saddle Inc. has two types of handbags: standard and custom. Thecontroller has decided to use a plantwide overhead rate based ondirect labor costs. The president has heard of activity-basedcosting and wants to see how the results would differ if thissystem were used. Two activity cost pools were developed: machiningand machine setup. Presented below is information related to thecompany’s operations.
| | Standard | | Custom |
|---|
| Direct labor costs | | $ 50,000 | | $ 100,000 |
|---|
| Machine hours | | 1,500 | | 1,200 |
|---|
| Setup hours | | 120 | | 420 |
|---|
Total estimated overhead costs are $ 297,000. Overhead costallocated to the machining activity cost pool is $ 189,000, and $108,000 is allocated to the machine setup activity cost pool.
Compute the overhead rate using the traditional (plantwide)approach. (Round answer to 2 decimal places, e.g.12.25.)
| Predetermined overhead rate | | enter the overhead rate as percentage of direct labor costrounded to 2 decimal places | % of direct labor cost |
eTextbook and Media
Compute the overhead rates using the activity-based costingapproach.
| Machining | | $ enter a dollar amount per machine hour | per machine hour |
|---|
| Machine setup | | $ enter a dollar amount per setup hour | per setup hour |
|---|
eTextbook and Media
Determine the difference in allocation between the twoapproaches.
| Traditionalcosting | | |
|---|
| Standard | | $ enter a dollar amount |
|---|
| Custom | | $ enter a dollar amount |
|---|
| | |
| Activity-basedcosting | | |
|---|
| Standard | | $ enter a dollar amount |
|---|
| Custom | | $ enter a dollar amount |
|---|
