Determine the difference in allocation

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Question - Saddle Inc. has two types of handbags: standard and custom. The controller has decided to use a plant wide 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

1,500

1,200

Setup hours

90

390

Total estimated overhead costs are $299,400. Overhead cost allocated to the machining activity cost pool is $189,000, and $110,400 is allocated to the machine setup activity cost pool.

Compute the overhead rate using the traditional (plant wide) approach. Round to two decimal places.

Predetermined overhead rate enter the overhead rate as percentage of direct labor cost rounded to 2 decimal places.

Determine the difference in allocation between the two approaches.

Reference no: EM132508656

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