Saddle Inc. has two types of handbags: standard and custom. The controller has d
ID: 2540430 • Letter: S
Question
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 $45,000 $113,000 Machine hours 1,140 1,110 Setup hours 106 430 Total estimated overhead costs are $308,000. Overhead cost allocated to the machining activity cost pool is $195,000, and $113,000 is allocated to the machine setup activity cost pool. Incorrect answer. Your answer is incorrect. Try again.
Compute the overhead rate using the traditional (plantwide) approach. (Round answer to 2 decimal places, e.g. 12.25.) Predetermined overhead rate:
Compute the overhead rates using the activity-based costing approach. (Round answers to 2 decimal places, e.g. 12.25.)
Machining:
Machine setup:
Determine the difference in allocation between the two approaches. (Round answers to 0 decimal places, e.g. 1,225.) Traditional costing
Standard:
Custom:
Explanation / Answer
Working:
Total direct labor Cost = $45,000 + $113,000 = $158,000
Total overhead costs = $308,000
Overheads as % of direct labor = ($308,000 / $158,000) x 100 = 195%
2.
Working:
Working:
Predetermined overhead rate 195% of direct labor costRelated Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.