Saddle Inc. has two types of handbags: standard and custom. The controller has decided to use a plant-wide 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.

Total estimated overhead costs are 5240,000. Overhead cost allocated to the machining activity cost pool is 5140,000, and 5100,000 is allocated to the machine setup activity cost pool.
Instructions
(a) Compute the overhead rate using the traditional (plant-wide) approach.
(b) Compute the overhead rates using the activity-based costing approach.
(c) Determine the difference in allocation between the two approaches.

Transcribed Image Text:

Standard Direct labor costs$50,000 1,000 100 Customn Machine hours Setup hours $100,000 1,000 400