Questions: Lily 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 (machine hours) and machine setup (number of setups). The total estimated machine hours is 2,400, and the total estimated number of setups is 500. Presented below is information related to the company's operations. - Standard Custom - Direct labor costs: 50,000 100,000 - Machine hours: 1,200 1,200 - Number of setups: 90 410 Total estimated overhead costs are 297,000. Overhead cost allocated to the machining activity cost pool is 192,000, and 105,000 is allocated to the machine setup activity cost pool. Compute the overhead rate using the traditional (plantwide) approach information related to each product's use of cost drivers. (Round answer to 0 decimal places, e.g. 12.) Predetermined overhead rate % of direct labor cost

Transcript text: Lily 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 (machine hours) and machine setup (number of setups). The total estimated machine hours is 2,400 , and the total estimated number of setups is 500 . Presented below is information related to the company's operations. \begin{tabular}{lrrr} \hline & Standard & & \multicolumn{1}{c}{ Custom } \\ \hline Direct labor costs & $\$ 50,000$ & & $\$ 100,000$ \\ \hline Machine hours & 1,200 & & 1,200 \\ \hline Number of setups & 90 & 410 \\ \hline \end{tabular} Total estimated overhead costs are $\$ 297,000$. Overhead cost allocated to the machining activity cost pool is $\$ 192,000$, and $\$ 105,000$ is allocated to the machine setup activity cost pool. (a) Compute the overhead rate using the traditional (plantwide) approach information related to each product's use of cost drivers. (Round answer to $O$ decimal places, e.g. 12.) Predetermined overhead rate \% of direct labor cost