7.7 (LO 2) Calculating traditional and ABC overhead rates Eric Parker has been studying his department's profitability reports for the past six months. He has just completed a managerial accounting course and is beginning to question the company's approach to allocating overhead to products based on machine hours. The current department overhead budget of $1,133,500 is based on 45,340 machine hours. In an initial analysis of overhead costs, Eric has identified the following activity cost pools. Cost Pool Expected Cost Expected Activities Product assembly $ 680,000 40,000 machine hours Machine setup and calibration 320,000 5,000 setups Product inspection 67,500 1,500 batches Raw materials storage 66,000 300,000 pounds $ 1,133,500 Required a. Calculate the company's traditional overhead rate based on machine hours. b. Calculate the company's overhead rates using the proposed activity-based costing pools