Question

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		Custom
Direct labor costs		$50,000		$100,000
Machine hours		1,200		1,500
Setup hours		90		390

Total estimated overhead costs are $285,000. Overhead cost allocated to the machining activity cost pool is $189,000, and $96,000 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. 12.25.)

Predetermined overhead rate _____ % of direct labor cost

Answer 1

rate positively ..

Overhead =	$      285,000
Total direct labour cost	$      150,000
Overhead rate =	190%
285000/150000
Ans =		190%	of direct labor cost