Elle 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 and machine set-up. Presented below is information related to the companys operations.

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.

Custom Direct labour costs Machine hours Set-up hours Standard $50,000 500 $100,000 1,000 400 100 (a) Calculate the overhead rate using the traditional (plant-wide) approach. Predetermined overhead rate % of direct labour cost