# 7-6 Calculating traditional and ABC overhead rates (LO 2) Smith Machining makes three products. The company's annual budget includes \$1,000,000 of overhead. In the past, the company allocated overhead based on expected capacity of 40,000 direct labor hours. The company recently implemented an activity-based costing system and has determined that overhead costs can be broken into four overhead pools: order processing, setups, milling, and shipping. The following is a summary of company information: Expected CostExpected ActivitiesOrder processing\$   175,00010,000 ordersSetups   160,000 4,000 setupsMilling   410,00020,500 machine hoursShipping    255,00025,000 shipments \$1,000,000 Requireda.Calculate the company's overhead rate based on direct labor hours.b.Calculate the company's overhead rates using the activity-based costing pools.

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7-6 Calculating traditional and ABC overhead rates (LO 2) Smith Machining makes three products. The company's annual budget includes \$1,000,000 of overhead. In the past, the company allocated overhead based on expected capacity of 40,000 direct labor hours. The company recently implemented an activity-based costing system and has determined that overhead costs can be broken into four overhead pools: order processing, setups, milling, and shipping. The following is a summary of company information:

 Expected Cost Expected Activities Order processing \$   175,000 10,000 orders Setups 160,000 4,000 setups Milling 410,000 20,500 machine hours Shipping 255,000 25,000 shipments \$1,000,000
##### Required

a.Calculate the company's overhead rate based on direct labor hours.

b.Calculate the company's overhead rates using the activity-based costing pools.

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a. Calculate the company's overhead rate based on direct labor hours.

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