Exercise 17-1 (Part Level Submission) Saddle Inc. has two types of handbags: sta

Question

Exercise 17-1 (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 $47,000 1,440 103 $99,000 1,440 430 Total estimated overhead costs are $298,000. Overhead cost allocated to the machining activity cost pool is $197,000, and $101,000 is allocated to the machine setup activity cost pool. ? (c) Determine the difference in allocation between the two approaches. (Round answers to 0 decimal places, e.g. 1,225.) Standard Custom Activity-based costing Standard Custom

Explanation / Answer

Overhead allocation between two approaches :

Traditional costing:

Standard = 298000*47000/146000 = 95932

Custom = 298000*99000/146000 = 202068

Activity based costing :

Standard = (197000*1440/2880+101000*103/533) = 118018

Custom = (197000*1440/2880+101000*430/533) = 179982

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