Leather 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 company's operations.

	Standard	Custom
Direct labor costs	$50,000	$100,000
Machine hours	1,000	1,000
Setup hours	100	400

Total estimated 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 te traditional (plantwide) approach

b. Compute the overhead rates using the activity-based costing approach

c. Determine the difference in allocation between the two approaches

Please clearly explain each step and how you got each numbers and please label everything.