Exercise 4-1 (Part Level Submission) Saddle Inc. has two types of handbags: stan

Question

Exercise 4-1 (Part Level Submission) Saddle Inc. has two types of handbags: standard and custom. The controller has decided to use a plantwide overhead rate based on direct labor costs. The president has 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. Standard Custom Direct labor costs Machine hours Setup hours $41,000 $103,000 1,490 370 1,240 109 Total estimated overhead costs are $304,000. Overhead cost allocated to the machining activity cost pool is $199,000, and $105,000 is allocated to the machine setup activity cost pool

Explanation / Answer

Car Truck Total Estimated wheels produced 39000 13000 Direct labor hours per wheel 1 3 Total 39000 39000 78000 Overhead rate = 850000/78000= $10.90 a2 Car wheels 425100 or $425000 if not rounded off =39000*10.9 Truck wheels 425100 or $425000 if not rounded off =39000*10.9 b Machining 72.89 per machine hour =199000/(1240+1490) Machine setup 219.21 per setup hour =105000/(109+370)

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