Hartley Company produces two products , Flower and Planter . Flower is a high-volume item totaling 20,000 units annually . Planter is a lowvolume item totaling only 6,000 units per year . Flower requires one hour of direct labor for completion , while each unit of Planter requires 2 hours . Therefore , total annual direct labor hours are 32,000 ( 20,000 + 12,000 ). Expected annual manufacturing overhead costs are $ 960,000 . Hartley uses a traditional costing system and assigns overhead based on direct labor hours . Each unit of Planter would be assigned overhead of
Exercise 17-1
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 $ 119,000 Machine hours 1,390 1,280 Setup hours 105 380
Total estimated overhead costs are $ 306,000 . Overhead cost allocated to the machining activity cost pool is $ 197,000 , and $ 109,000 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