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Smithson, Inc. produces two types of gas grills: a family model and a deluxe model. Smithsons 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 companys operations:

		Family Model		Deluxe Model
Direct labor costs		$72,600		$145,200
Machine hours		2,000		2,000
Setup hours		200		800

Total estimated overhead costs are $435,600. Overhead cost allocated to the machining activity cost pool is $261,360 and $174,240 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

$ 2

Compute the overhead rates using the activity-based costing approach. (Round answers to 2 decimal places, e.g. 15.25.)

		Overhead Rate
Machining		$ 65.34 per hour
Machine set up		$ 174.24 per hour

Determine the difference in allocation between the two approaches.

		Family Model		Deluxe Model
Traditional		$		$
ABC		$		$
Difference		$		$

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