Crane Inc. makes two types of handbags: standard and custom. The controller has decided to use a plant-wide overhead rate based on direct labour 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 (machine hours) and machine set-up (number of set-ups). The total estimated machine hours is 1,500, and the total estimated number of setups is 500. Presented below is information related to the company's operations. Standard Custom Direct labour costs $50,000 $100,000 Machine hours 500 1,000 Set-up hours 100 400 Total estimated overhead costs are $187,500. The overhead cost allocated to the machining activity cost pool is $151,500, and $36,000 is allocated to the machine set-up activity cost pool. (a) Your answer is correct. Calculate the overhead rate using the traditional (plant-wide) approach. Predetermined overhead rate eTextbook and Media 125 % of direct labour cost (b) Calculate the overhead rate using the activity-based costing approach. Cost Pool Machining $ Machine set-up $ Overhead Rate per machine hour per set-up hour