E4-1 Wilkins 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. Pre- sented 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 $270,000. Overhead cost allocated to the machining ac- tivity cost pool is $170,000, and $100,000 is allocated to the machine setup activity cost pool. Instructions (a) Compute the overhead rate using the traditional (plantwide) approach. (b) Compute the overhead rates using the activity-based costing approach. (c) Determine the difference in allocation between the two approaches. (d) Discuss the results between the two types of costing system, traditional and ABC costing, in terms of understated or overstated allocation of the overhead and the effect it has on the product pricing. Type your answer (including calculations) in the table below: (a) OVERHEAD RATE USING THE TRADITIONAL (PLANTWIDE) APPROACH. (b) OVERHEAD RATES USING THE ABC APPROACH. ACTIVITY COST COST DRIVERS POOLS ESTIMATED OVERHEAD ACTIVITY-BASED OVERHEAD RATES CALCULATION MACHINING MACHINE SETUP (c) CALCULATION OF DIFFERENCE IN ALLOCATION BETWEEN THE TWO APPROACH. TRADITIONAL COSTING OVERHEAD ALLOCATION STANDARD HANDBAG CUSTOM HANDBAG TOTAL OVERHEAD ALLOCATION ABC COSTING OVERHEAD ALLOCATION STANDARD HANDBAG CUSTOM HANDBAG MACHINING MACHINE SETUP TOTAL OVERHEAD ALLOCATION (d) DISCUSS THE RESULTS BETWEEN THE TWO TYPES OF COSTING SYSTEM, TRADITIONAL AND ABC COSTING, IN TERMS OF UNDERSTATED OR OVERSTATED ALLOCATION OF THE OVERHEAD AND THE EFFECT IT HAS ON THE PRODUCT PRICING