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$75,000$150,000

Machine hours2,0002,000

Setup hours200800

Packaging hours 5075

The estimated overhead of $450,000 is allocated as follows:machining activity cost pool $240,000, machine set up $170,000 and packaging $40,000.

(1)Determine the overhead rates using the activity-based costing approach with three cost pools.

(2)Determine the overhead allocation for the family model and the deluxe model using three activity cost pools.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?