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 $40,000 $95,000 Machine hours 1,100 1,100 Setup hours 95 370 Total estimated overhead costs are $295,000. Overhead cost allocated to the machining activity cost pool is $195,000, and $100,000 is allocated to the machine setup activity cost pool. Compute the overhead rate using the traditional (plantwide) approach. (Round answer to 2 decimal places, e.g. 12.25.) Predetermined overhead rate enter the predetermined overhead rate in percentages of direct labor cost rounded to 2 decimal places % of direct labor cost Compute the overhead rates using the activity-based costing approach. (Round answers to 2 decimal places, e.g. 12.25.) Machining $enter a dollar amount per machine hour rounded to 2 decimal places per machine hour Machine setup $enter a dollar amount per setup hour rounded to 2 decimal places per setup hour Determine the difference in allocation between the two approaches. (Round answers to 0 decimal places, e.g. 1,225.) Traditional costing Standard $enter a dollar amount rounded to 0 decimal places Custom $enter a dollar amount rounded to 0 decimal places Activity-based costing Standard $enter a dollar amount rounded to 0 decimal places Custom $enter a dollar amount rounded to 0 decimal places
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 $40,000 $95,000 Machine hours 1,100 1,100 Setup hours 95 370 Total estimated overhead costs are $295,000. Overhead cost allocated to the machining activity cost pool is $195,000, and $100,000 is allocated to the machine setup activity cost pool. Compute the overhead rate using the traditional (plantwide) approach. (Round answer to 2 decimal places, e.g. 12.25.) Predetermined overhead rate enter the predetermined overhead rate in percentages of direct labor cost rounded to 2 decimal places % of direct labor cost Compute the overhead rates using the activity-based costing approach. (Round answers to 2 decimal places, e.g. 12.25.) Machining $enter a dollar amount per machine hour rounded to 2 decimal places per machine hour Machine setup $enter a dollar amount per setup hour rounded to 2 decimal places per setup hour Determine the difference in allocation between the two approaches. (Round answers to 0 decimal places, e.g. 1,225.) Traditional costing Standard $enter a dollar amount rounded to 0 decimal places Custom $enter a dollar amount rounded to 0 decimal places Activity-based costing Standard $enter a dollar amount rounded to 0 decimal places Custom $enter a dollar amount rounded to 0 decimal places
Chapter1: Financial Statements And Business Decisions
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Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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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.
Total estimated overhead costs are $295,000. Overhead cost allocated to the machining activity cost pool is $195,000, and $100,000 is allocated to the machine setup activity cost pool.
|
Standard
|
Custom
|
|||
|---|---|---|---|---|
| Direct labor costs | $40,000 | $95,000 | ||
| Machine hours | 1,100 | 1,100 | ||
| Setup hours | 95 | 370 |
Total estimated overhead costs are $295,000. Overhead cost allocated to the machining activity cost pool is $195,000, and $100,000 is allocated to the machine setup activity cost pool.
Compute the overhead rate using the traditional (plantwide) approach. (Round answer to 2 decimal places, e.g. 12.25.)
| Predetermined overhead rate |
enter the predetermined overhead rate in percentages of direct labor cost rounded to 2 decimal places
|
% of direct labor cost |
Compute the overhead rates using the activity-based costing approach. (Round answers to 2 decimal places, e.g. 12.25.)
| Machining |
$enter a dollar amount per machine hour rounded to 2 decimal places
|
per machine hour | |
|---|---|---|---|
| Machine setup |
$enter a dollar amount per setup hour rounded to 2 decimal places
|
per setup hour |
Determine the difference in allocation between the two approaches. (Round answers to 0 decimal places, e.g. 1,225.)
| Traditional costing | ||
|---|---|---|
| Standard |
$enter a dollar amount rounded to 0 decimal places
|
|
| Custom |
$enter a dollar amount rounded to 0 decimal places
|
|
| Activity-based costing | ||
| Standard |
$enter a dollar amount rounded to 0 decimal places
|
|
| Custom |
$enter a dollar amount rounded to 0 decimal places
|
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