Exercise 17-1 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 companys operations.

Standard Custom

Direct labor costs $50,000 $100,000

Machine hours 1,000 1,000

Setup hours 100 400

Total estimated overhead costs are $240,000. Overhead cost allocated to the machining activity cost pool is $140,000, and $100,000 is allocated to the machine setup activity cost pool.

Questions in Image

Compute the overhead rate using the a traditional (plantwide) approach. (Round answer to 2 decimal places, eg. 12.25.) Predetermined overhead rate % of direct labor cost LINK TO TEXT LINK TO TEXT VIDEO: SIMILAR EXERCISE | Compute the overhead rates using the activity-based costing approach. (Round answers to 2 decimal places, e.g. 12.25.) Machining 5 per machine hour Machine setups per setup hour LINK TO TEXT LINK TO TEXT VIDEO: SIMILAR EXERCISE | Determine the difference in allocation between the two approaches. (Round answers to 0 decimal places, eg1,225.) Traditional costing Standard Custom Activity-based costing Standard Custom