( 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