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		1,500		1,500
Setup hours		90		360

Total estimated overhead costs are $309,000. Overhead cost allocated to the machining activity cost pool is $210,000, and $99,000 is allocated to the machine setup activity cost pool.

Exercise 17-01 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. Direct labor costs Machine hours Setup hours Standard $50,000 1,500 90 Custom $100,000 1,500 360 Total estimated overhead costs are $309,000. Overhead cost allocated to the machining activity cost pool is $210,000, and $99,000 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 setups per setup hour Determine the difference in allocation between the two approaches. Traditional costing Standard $ Custom $ Determine the difference in allocation between the two approaches. Traditional costing Standard $ Custom $ $ Activity-based costing. Standard $ Custom $