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.

(a)

Correct answer iconYour answer is correct.

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

Predetermined overhead rate

206% of direct labor cost

(b)

Correct answer iconYour answer is correct.

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

Machining		70	per machine hour
Machine setup		220	per setup hour

(c) (Please only do this one - the above a and b are complete)

Determine the difference in allocation between the two approaches.

Traditional costing
Standard		$enter a dollar amount
Custom		$enter a dollar amount
Activity-based costing
Standard		$enter a dollar amount
Custom		$enter a dollar amount