( b) Classify each of these activities as unit-level, batch-level, productlevel, or facility-level.
E4-1
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 1,000 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.
Instructions:
a. Compute the overhead rate using the traditional( plant wide) approach.
b. Compute the overhead rates using the activity-based costing approach.
c. Determine the difference in allocation between the two approaches.
E4-6