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.

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abiolataiwo2015 abiolataiwo2015 · Answer 1 · 2021-10-02T23:40:40+02:00

a. Computation for the overhead rate using the traditional plantwide approach

Plantwide overhead rate = 303,000/145,000

Plantwide overhead rate= 208.97%

(43,000 + 102,000 =145,000)

b. Computation for the overhead rates using the activity-based casting approach

Machining = 196,000/2,580

Machining= 75.97 per machine hour

Machine setup = 107,000/490

Machine setup = 218.37 per setup

c. Calculation to determine the difference in allocation between the two approaches.

Overhead allocated :

Traditional costing

Standard= (43,000×208.97%)

Standard=89,857

Custom=(102,000×208.97%)

Custom=213,149

Activity based costing

Standard= (1,310×75.97)+(110×218.37)

Standard=99,520.7+24,020.7

Standard=123,541

Custom=(1,270×75.97)+(380×218.37)

Custom=96,482+82,981

Custom=179,463

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