Smith Machining makes three products. The company’s annual budget includes $1200,000 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:

Required

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

b. Calculate the company’s overhead rates for each of the activity-based costing pools.

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Expected Activities Expected Cost $ 275,000 Order processing 20,000 orders Setups Milling Shipping 180,000 600 setups 490,000 50,000 machine hours 255,000 25,000 shipments $1,200,000