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 was used. Two activity cost pools were developed: machining and machine
setup. Presented below is information related to the company's operations.
				Standard	Custom
	Direct labor costs			$50,000	$100,000
	Machine hours			1,000	1,000
	Setup hours			100	400
Total estimated overhead costs are $240,000. Overhead cost allocated to the machining activity cost pool is
$140,000 and $100,000 is allocated to the machine setup activity cost pool.
Instructions
(a) Compute the overhead rate using the traditional (plantwide) approach.
(b) Compute the overhead rates using the activity-based costing approach.
(c) Determine the difference in allocation between the two approaches.