Sheridan 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		120		390

Total estimated overhead costs are $299,100. Overhead cost allocated to the machining activity cost pool is $192,000, and $107,100 is allocated to the machine setup activity cost pool.

1. Compute the overhead rate using the traditional (plantwide) approach.

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

3. Determine the difference in allocation between the two approaches.