Exercise 18-1 Standard Custom LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEX
ID: 2339056 • Letter: E
Question
Exercise 18-1
Standard
Custom
LINK TO TEXT
LINK TO TEXT
LINK TO TEXT
LINK TO TEXT
Exercise 18-1
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 $52,000 $120,000 Machine hours 1,170 1,100 Setup hours 99 420Total estimated overhead costs are $301,000. Overhead cost allocated to the machining activity cost pool is $197,000, and $104,000 is allocated to the machine setup activity cost pool.
Explanation / Answer
Answer
A
Total Overheads
$ 301,000.00
B
Total Direct Labor costs
$ 172,000.00
C = (A/B) x 100
Predetermined Overhead rate
175%
Overhead cost
Cost drivers
Total Drivers
Overhead rate per cost driver
Machine Activity
$ 197,000.00
machine hours
2270
$ 86.78
per machine hour
Setup Activity
$ 104,000.00
setup hours
519
$ 200.39
per setup hour
$ 301,000.00
Traditional Costing
[Workings]
Amount of Overhead
Standard
[$ 52,000 x 175%]
$ 91,000
Custom
[$ 120,000 x 175%]
$ 210,000
Activity Based Costing
Standard
[(1170 machine hours x $86.78) + (99 setup hours x $ 200.39]
$ 121,371
Custom
[(1100 machine hours x $86.78) + (420 setup hours x $ 200.39]
$ 179,622
A
Total Overheads
$ 301,000.00
B
Total Direct Labor costs
$ 172,000.00
C = (A/B) x 100
Predetermined Overhead rate
175%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.