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 activit 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 $59,000 $112,000 1,110 370 1,380 101 Total estimated overhead costs are $309,000. Overhead cost allocated to the machining activity cost pool is $200,000, and $109,000 is allocated to the machine setup activity cost pool (a) 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 LINK TO TEXT LINK TO TEXT VIDEO: SIMILAR EXERCISE

Explanation / Answer

Estimated overhead/Direct labor costs = Predetermined overhead rate

309000/(59000+112000) = 1.8070

Therefore, Predetermined overhead rate 180.70% of direct labor cost.

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