Exercise 17-1 Saddle 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. Presented below is information related to the companys 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 $100,000is allocated to the machine setup activity cost pool.

Compute the overhead rate using the traditional (plantwide) approach.(Round answer to 2 decimal places, e.g. 12.25.)

Predetermined overhead rate

% of direct labor cost

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Compute the overhead rates using the activity-based costing approach.(Round answers to 2 decimal places, e.g. 12.25.)

Machining	$	per machine hour
Machine setup	$	per setup hour

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Determine the difference in allocation between the two approaches.(Round answers to 0 decimal places, e.g. 1,225.)

Traditional costing
Standard	$
Custom	$
Activity-based costing
Standard	$
Custom	$

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