Question

northerncold company sells several products. information for average

Exercise 4-1 (Video) 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, Custom Direct labor costs Machine hours Setup hours Standard $50,000 1,200 120 $100,000 1,200 390 Total estimated overhead couts are $299, 100Overhead cost allocated to the machining activity cost pool is 192,000, and $107,100 is located to the machine setup activity cost pool Compute the overhead rate using the traditional plantwide) approach (Round answer to decimal places. 12.25.) Predetermined overhead rate % of direct labor cost Compute the overhead rates using the activity-based costing approach Machining $ per machine hour Machine setup per setup hour Determine the difference in allocation between the two approaches Traditional costing Standard Custom $ Activity based costing Standard $ Custom

Answer 1

Answer:
Predetermined overhead rate           = Estimated overhead Cost / Total Direct labor cost           =   $ 299,100 / ( $ 50,000 + $ 100,000 )           =   $ 299,100 / $ 150,000	199.4% of Direct labor Cost
Overhead rate using Activity Based Costing
Machining            = Activity Cost Pool / Total Machine Hours            = $ 192,000 / ( 1,200 + 1,200 )            =   $ 192,000 / 2,400	$ 80 per Machine Hour
Machine Setup            = Activity Cost Pool / Total setup Hours            = $ 107,100 / ( 120 + 390 )            =   $ 107,100 / 510	$ 210 per Setup hour
Difference in Allocation :
Traditional costing:
- Standard           ( $ 50,000 x 199.4% )	$ 99,700
- Custom           ( $ 100,000 x 199.4% )	$ 199,400
Activity Based Costing:
- Standard           ( 1,200 x $ 80 ) + ( 120 x $ 210)	$ 121,200
- Custom           ( 1,200 x $ 80 ) + ( 390 x $ 210 )	$ 177,900