Sheridan, Inc. produces two types of gas grills: a family model and a deluxe model. Sheridans controller has decided to use a plantwide overhead rate based on direct labor costs. The president of the company recently 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:

		Family Model		Deluxe Model
Direct labor costs		$ 76,500		$ 153,000
Machine hours		2,000		2,000
Setup hours		200		800

Total estimated overhead costs are $ 459,000. Overhead cost allocated to the machining activity cost pool is $ 275,400 and $ 183,600 is allocated to the machine setup activity cost pool.

(a)

Correct answer icon

Your answer is correct.

Compute the overhead rate using the traditional (plantwide) approach. (Round answer to 2 decimal places, e.g. 15.25.)

Overhead rate

$ enter the overhead rate in dollars rounded to 2 decimal places

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Attempts: 1 of 3 used

(b)

Correct answer icon

Your answer is correct.

Compute the overhead rates using the activity-based costing approach. (Round answers to 2 decimal places, e.g. 15.25.)

		Overhead Rate
Machining		$ enter a dollar amount per hour rounded to 2 decimal places per hour
Machine set up		$ enter a dollar amount per hour rounded to 2 decimal places per hour

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Attempts: 1 of 3 used

(c)

Determine the difference in allocation between the two approaches.

		Family Model		Deluxe Model
Traditional		$ enter a dollar amount		$ enter a dollar amount
ABC		$ enter a dollar amount		$ enter a dollar amount
Difference		$ enter a dollar amount		$ enter a dollar amount