Clover Manufacturing Company makes two products. The company’s budget includes $200,000 of overhead. Using the traditional allocation method, the company has allocated overhead based on estimated total direct labor cost of $125,000. Clover recently implemented an activity-based costing system and had determined that overhead can be broken into three overhead pools: cutting, machine setups, and good shipped. The following is a summary of company information:
a.Calculate the company's overhead rate as a percentage of direct labor cost.
b.Calculate the company's overhead rates using the activity-based costing pools.
Definitions:
Lease Rate
The amount charged under a lease agreement for the use of an asset, often expressed as a payment amount per period.
Sales-Type Capital Lease
A leasing agreement in which the lessor recognizes immediate sales revenue and profit, reflecting the transaction as a sale rather than a rental.
Operating Lease
A lease agreement allowing the use of an asset but does not convey rights similar to ownership of the asset.
Direct Financing Capital Lease
A lease agreement where the lessor purchases an asset and leases it out to the lessee, earning interest revenue over the lease term.
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