Salatic Co 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 system 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: Standard Custom Total Direct labor costs $340,000 $204,000 $544,000 Machine hours 17,000 25,500 42,500 Setup hours 850 680 1,530 Total estimated overhead costs $380,800 Overhead cost allocated to machining cost pool $272,000 Overhead cost allocated to setup cost pool $108,800

Requirement: 1 Compute overhead costs allocated to each product using traditional (plantwide) approach

2 Compute overhead costs allocated to each product using ABC approach

3 Determine the difference and comment on the results.