Calculating traditional and ABC overhead rates (LO 2) Carson Weeks has been studying his department's profitability reports for the past six months. He has just completed a managerial accounting course and is beginning to question the company's approach to allocating overhead to products based on machine hours. The current department overhead budget of $850,000 is based on 40,000 machine hours. In an initial analysis of overhead costs, Carson has identified the following activity cost pools.
Cost Pool Expected Cost Expected Activitie
Product assembly $ 350,000 40,000 machine hours
Machine setup and calibration 280,000 2,000 setups
Product inspection 120,000 1,500 batches
Raw materials storage 100,000 500,000 pounds
$ 850,000
Required
(a) Calculate the company's overhead rate based on machine hours.
(b) Calculate the company's overhead rates using the proposed activity-based costing pools.