Marigold 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		1,200		1,200
Setup hours		90		390

Total estimated overhead costs are $297,600. Overhead cost allocated to the machining activity cost pool is $192,000, and $105,600 is allocated to the machine setup activity cost pool.

(a)

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

Predetermined overhead rate

enter the predetermined overhead rate as a percentage of direct labor cost

% of direct labor cost

Compute the overhead rate using activity based approach

Machine $ per hour

Machine set up per hour $

Lastly determine the difference between the two approaches

Traditonal costing

standard $

custom $

Activity based costing

standard

custom