Needing assistance in working thru this problem calculating ABC overhead rates.
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.