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 company's operations.

Activity Cost Pools and Drivers

Activity	Standard	Custom
Direct Labor Costs	$50,000	$100,000
Machine Hours	1,500	1,500
Setup Hours	90	420

Total estimated overhead costs are $306,900. The overhead cost allocated to the machining activity cost pool is $210,000, and $96,900 is allocated to the machine setup activity cost pool.

Compute the overhead rate using the traditional (plantwide) approach.

Response - Overhead Rate

Predetermined Overhead Rate

% of Direct Labor Cost

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

Response - Overhead Rate

Machining	$ per Machine Hour
Machine setup	$ per Setup Hour

Determine the difference (in costs) in allocation between the two approaches.

Traditional Costing
Standard	$
Custom	$
Activity-Based Costing
Standard	$
Custome	$