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		$50,000		$100,000
Machine hours		1,200		1,200
Setup hours		90		420

Total estimated overhead costs are $294,000. Overhead cost allocated to the machining activity cost pool is $192,000, and $102,000 is 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.

Machining		$	per machine hour
Machine setup		$	per setup hour

Determine the difference in allocation between the two approaches.

Traditional costing
Standard		$
Custom		$
Activity-based costing
Standard		$
Custom		$