Current Attempt in Progress 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. Direct labor costs Machine hours Setup hours Standard $50,000 1,500 90 Custom $100,000 1,500 420 4 Total estimated overhead costs are $312,000. Overhead cost allocated to the machining activity cost pool is $210,000, and $102,000 is allocated to the machine setup activity cost pool.
Current Attempt in Progress 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. Direct labor costs Machine hours Setup hours Standard $50,000 1,500 90 Custom $100,000 1,500 420 4 Total estimated overhead costs are $312,000. Overhead cost allocated to the machining activity cost pool is $210,000, and $102,000 is allocated to the machine setup activity cost pool.
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:30
Predetermined overhead rate
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(b)
Machining
Compute the overhead rates using the activity-based costing approach.
Machine setup
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Current Attempt in Progress
Direct labor costs
Machine hours
Setup hours
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.
(a)
×› (383) Chand Sifarish - YouT xa (1) bartleby - Search
Standard
1,500
$50,000 $100,000
90
Custom
1,500
Video thumbnail fo...
420
xb Home | bartleby
1.67/5 = :
4
Total estimated overhead costs are $312,000. Overhead cost allocated to the machining activity cost pool is $210,000, and
$102,000 is allocated to the machine setup activity cost pool.
Expert Solution
Step 1
Activity Based Costing :— It is the method of costing used to allocated overhead to cost object.
Under this method overhead is allocated as follows :—
- First we have to calculate activity rate which is also called as overhead rate under activity based activity.
- Then we use this activity rate to allocate the total overhead cost between the activities.
- Total overhead cost is allocated by multiplying activity rate with activity cost driver of that activity.
Activity Rate
= Total Overhead Cost of Activity/Total Activity cost driver
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