EXERCISES E18/1 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 (LO 1, 2) were used. Two activity cost pools were developed: machining and machine setup. Pre- sented below is information related to the company's operations. Assign overhead using traditional costing and XLS Standard Custom Direct labor costs Machine hours $50,000 1,000 $100,000 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 $100,000 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