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 company’s operations. Standard CustomDirect labor costs $50,000 $100,000Machine hours 1,000 1,000Setup hours 100 400Total 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.
Required:
(a) Compute the overhead rate using the a traditional (plantwide) approach. (Round answer to 2 decimal places, eg. 12.25.)
(b) Compute the overhead rates using the activity-based costing approach. (Round answers to 2 decimal places, e. g. 12.25.)
(c) Determine the difference in allocation between the two approaches. (Round answers to 0 decimal places, eg1,225.)