Exercise 18-1 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	$47,000	$99,000
Machine hours	1,440	1,440
Setup hours	103	430

Total estimated overhead costs are $298,000. Overhead cost allocated to the machining activity cost pool is $197,000, and $101,000is 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

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

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	$