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.

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.

(a) Determine the difference in allocation between the two approaches. 

Traditional Costing

Standard          $

Custom             $

Activity-based costing

Standard          $

Custom             $

(b) Compute the overhead rate using the traditional (plantwide) approach.
(c) Compute the overhead rates using the activity-based costing approach.
(d) Determine the difference in allocation between the two approaches.

Transcribed Image Text:

Standard Custom Direct labor costs $58,000 $97,000 Machine hours 1,190 1,220 Setup hours 109 400 Standard Custom Direct labor costs $58,000 $97,000 Machine hours 1,190 1,220 Setup hours 109 400

Answer rating: 100% (QA)

aThe difference in the allocation between the two approach can be seen in the number of cost drivers ... View the full answer