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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.
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.
Direct labor costs $40,000 standard $95,000 custom
Machine hours 1,100 standard 1,100 custom
Setup hours 95 standard 370 custom
Total estimated overhead costs are $295,000. Overhead cost allocated to the machining activity cost pool is $195,000, and $100,000 is allocated to the machine setup activity cost pool.
a. What is the overhead rate using the traditional (plantwide) approach? (Round answer to 2 decimal places)
Predetermined overhead rate _____ % of direct labor cost
