*Exercise 18-1 Saddle Inc. has two types of handbags: standard and custom. The c
ID: 2338116 • Letter: #
Question
*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 Machine hours Setup hours $43,000 $120,000 1,410 410 1,390 104 Total estimated overhead costs are $295,000. Overhead cost allocated to the machining activity cost pool is $199,000, and $96,000 is allocated to the machine setup activity cost pool. K] 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 ovrdrate E8 Predetermined overhead rate % of direct labor cost Your answer is partially correct. Try again. Compute the overhead rates using the activity-based costing approach. (Round answers to 2 decimal places, e.g. 12.25.) Machining 71 per machine hour Machine setup s186.77 per setup hour Your answer is incorrect. Try again. Determine the difference in allocation between the two approaches. (Round answers to O decimal places, e.g. 1,225.) Traditional costing Standard 7783000 Custom Activity-based costing Standard CustomExplanation / Answer
Predetermined overhead rate = Estimated overhead costs/Total direct labor costs = $295000/($43000 + $120000) = $295000/$163000 = 180.98% of direct labor cost
Machining: $199000/(1390 + 1410) = $199000/2800 = $71.07 per machine hour
Machine setup: $96000/(104 + 410) = $96000/514 = $186.77 per setup hour
Traditional costing
Standard: $43000 x 180.98% = $77821
Custom: $120000 x 180.98% = $217176
Activity costing
Standard: (1390 x $71.07) + (104 x $186.77) = $98787.3 + $19424.08 = $118211
Custom: (1410 x $71.07) + (410 x $186.77) = $100208.7 + $76575.7 = $176784
Traditional costing Standard $ 77,821 Custom $ 217,176 Activity-based costing Standard $ 118,211 Custom $ 176,784Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.