Exercise 17-1 Saddle Inc, has two types of handbags: standard and custom. The co

Question

Exercise 17-1 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 ystem were used. Two activity cost pools were devaloped: machining and machine setup. Prestedbalow is information ralated to the company's oparations. Standard Custom Direct labor costs Machine hours Setup hours 58,000 $97,000 1,220 400 1.190 109 Total estimated overhead costs are $304,000. Overhead cost allocated to the machining activity cost pool is $197,000, and $107,000 is allocated to the machine setup activity cost pool Compute the overhead rate using the traditional (plantwide) approach. (Round answer to 2 decimal places, e.g.12.25.) Predetermined overhead rate of direct labor cost VIDEO: SIMILAR EXERCISE Compute the overhead rates using the activity-based coating approach. (Round answers to 2 decimal places, e.g. 12.25.) Machining Machine setup per machine hour per setup hour LINK TO TEXT Determine the difference in allocation between the two approaches. (Round answers to O decimal places, e.g. 1,225.) aditional costing Standard Custom Standard Custom

Explanation / Answer

1 Direct labor 97000+58000 155000 Estimated Overhead 304000 Predetermined overhead rate 304000/155000 196% of direct labor cost 2 overhead rates using the activity-based costing approach machining activity/ total machine hours 197000/(1190+1220) 81.74 Per machine hr Set up hours 107000/(109+400) 210.22 per setup hr 3 Traditional Standard 58000*196% 113680 Custom 97000*196% 190120 Activity-based Machine Standard 81.74*1190 97270.60 Custom 81.74*1220 99722.80 Set up Standard 210.22*109 22913.98 Custom 210.22*400 84088 Standard 97270.60+22913.98 120184.58 Custom 99722.80+84088 183810.80

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