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. 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 1,000 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.

Answer 1

The answer is "160, 70, and 200"

Step-by-step explanation:

Formula:

`\text{Overhead rate predetermination}=\frac{\text{overhead costs} * 100}{\text{direct cost of labor}}`

`=(240000 * 100)/(150000)\\\\=(24 * 100)/(15)\\\\=(2400)/(15)\\\\= 160`

calculating the overhead rate under the ABC:

`Machining = (140000)/(2000) = (140)/(2)=70 \ / machine\ hour \\\\\text{set up} =(100000)/(500) = (1000)/(5)= 200 \ / set \ up`