Question
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.
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 $41,000 $99,000
Machine hours 1,430 1,330
Setup hours 110 420
Total estimated overhead costs are $304,000. Overhead cost allocated to the machining activity cost pool is $197,000, and $107,000is allocated to the machine setup activity cost pool.
Determine the difference in allocation between the two approaches.(Round answers to 0 decimal places, e.g. 1,225.)
Traditional costing
standard $_______
custom $________
Activity-based costing
standard $_______
custom $________
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