Question

Question 5 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 Standard Custom Direct labor costs $50,000 $100,000 Machine hours 1,200 1,200 Setup hours 120 420 Total estimated overhead costs are $289,200. Overhead cost allocated to the machining activity cost pool is $192,000, and $97,200 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 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

Answer 1

Activity based casting $1,17,600 standard (1200x80 ) +120x180) Custom $ 1.71,600 (1200x)+(420 x 180) $2,89,200 there is no difference.
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