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