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

Difference in allocation of cost :

Traditional costing :

Activity based costing :

Please post next question as individual question as per chegg policy

Standard 304000/144000*41000 $86556 Custom 304000/144000/103000 $217444

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