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 CustomDirect labor costs $50,000 $100,000Machine hours 1,000 1,000Setup hours 100 400Total estimated overhead costs are $240,000. Overhead cost allocated to the machining activity cost pool is $140,000, and $100,000 is allocated to the machine setup activity cost pool.
Required:
(a) Compute the overhead rate using the a traditional (plantwide) approach. (Round answer to 2 decimal places, eg. 12.25.)
(b) Compute the overhead rates using the activity-based costing approach. (Round answers to 2 decimal places, e.g. 12.25.)
(c) Determine the difference in allocation between the two approaches. (Round answers to 0 decimal places, eg1,225.)

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beingteenowfmao beingteenowfmao · Answer 1 · 2020-02-21T23:27:24+01:00

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Tundexi Tundexi · Answer 2 · 2022-04-07T12:00:37+02:00

The overhead rate using the traditional (plantwide) approach is 160% and the overhead rates using the activity-based costing approach is $70

= Estimated overhead / Direct labor cost

= $240,000 / (50,000 + 100,000)

= $240,000 / 150,000

= 160%

Given that Machining have 140,000 estimated overhead and Machine setup have 100,000 estimated overhead

Per machine hour = Cost of machining / Number of machine hour

Per machine hour = $140,000 / (1,000+1,000)

Per machine hour = $140,000 /2, 000

Per machine hour = $70