Question

	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		$       420,000	$        252,000	$            672,000
	Machine hours		21,000	31,500	52,500
	Setup hours		1,050	840	1,890
	Total estimated overhead costs				$            470,400
	Overhead cost allocated to machining cost pool				$            336,000
	Overhead cost allocated to setup cost pool				$            134,400
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.

Answer 1