Smithson, Inc. produces two types of gas grills: a family model and a deluxe model. Smithson's controller has decided to use a plantwide overhead rate based on direct labor costs. The president of the company recently 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: Family Model Deluxe Model Direct labor costs $73,200 $146,400 Machine hours 2,000 2,000 Setup hours 200 800 Total estimated overhead costs are $439,200. Overhead cost allocated to the machining activity cost pool is $263,520 and $175.680 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. 15.25.) Overhead rate Compute the overhead rates using the activity-based costing approach. (Round answers to 2 decimal places, e.g. 15.25.) Overhead Rate Machining $ per hour Machine set up $ per hour Determine the difference in allocation between the two approaches Traditional ABC $ Difference $ Family Model $ Deluxe Model Smithson, Inc. decided to implement the activity-based costing approach and was quite successful in its use. However, the controller is wondering if instead of only two activity cost pools, they should expand to three activity cost pools based on the following: Family Model Deluxe Model Direct labor costs $73,200 $146,400 Machine hours 2,000 2,000 Setup hours 200 800 Packaging hours 50 75 The estimated overhead of $439.200 is allocated as follows: machining activity cost pool $234,240, machine set up $165,920 and packaging $39,040. Determine the overhead rates using the activity-based costing approach with three cost pools. (Round answers to 2 decimal places, eg. 15.25) Overhead Rate Machining $ per hour Machine set up Packaging per hour 50 per hour Determine the overhead allocation for the family model and the deluxe model using three activity cost pools. Oerhead Allocation Family model $ Deluxe model What is the difference in allocation between two activity cost pools and three activity cost pools? Is the difference in allocation worth using the third activity cost pool? Difference The additional cost pool the overhead cost allocation significantly