Cato Company has been allocating overhead to individual product lines based on each lines relative share of direct labor hours. For the upcoming year, the company estimated that manufacturing overhead will be $3,780,000 and estimated direct labor hours will be 252,000. The company also has the following estimates:

Cost Pool		Cost Driver		Total Amount			Total Amount of Activity
Maintenance costs		Direct labor hours		$ 1,470,000			252,000
Setup costs		Number of setups		1,050,000			200
Engineering costs		Number of design changes		1,260,000			400
				$3,780,000

Among many other products, Cato has two switches, Standard and Elite switches. Standard switches are a high-volume product that the company makes in large batches, while Elite switches are a specialty product that is fairly low in sales volume. Information about Standard and Elite usage of the different activities follows:

		Standard			Elite
Direct labor hours		3,000			300
Number of setups		1			14
Number of design changes		2			20

Calculate the predetermined overhead rate based on direct labor hours (traditional allocation). (Round answer to 2 decimal places, e.g. 15.25.)

Predetermined overhead rate

$enter a dollar amount

per DLH

Use this predetermined overhead rate to calculate the amount of overhead to apply to Standard and Elite switches, based on their usage of direct labor hours. (Round answers to 0 decimal places, e.g. 125.)

		Standard		Elite
Overhead allocated		$enter a dollar amount for Overhead allocated to standard rounded to 0 decimal places		$enter a dollar amount for Overhead allocated to elite rounded to 0 decimal places

eTextbook and Media

Calculate the individual ABC pool rates by taking the total amount of overhead for each cost pool and dividing that total by the total amount of activity for that pool. (Round maintenance costs pool rate to 2 decimal places, e.g. 15.25 and other answers to 0 decimal places, e.g. 125.)

Cost Pool		Cost pool rate
Maintenance costs		$enter a dollar amount rounded to 2 decimal places	/DLH
Setup costs		$enter a dollar amount rounded to 0 decimal places	/setup
Engineering costs		$enter a dollar amount rounded to 0 decimal places	/design change

Allocate overhead to each of the two products using these three activity rates. (Round answers to 0 decimal places, e.g. 125.)

		Maintenance Costs		Setup Costs		Engineering		Total MOH
Standard		$enter a dollar amount for Standard maintenance costs rounded to 0 decimal places		$enter a dollar amount for Standard set up costs rounded to 0 decimal places		$enter a dollar amount for standard Engineering costs rounded to 0 decimal places		$enter a dollar amount for standard Total MOH rounded to 0 decimal places
Elite		$enter a dollar amount for elite maintenance costs rounded to 0 decimal places		$enter a dollar amount for elite set up costs rounded to 0 decimal places		$enter a dollar amount for elite Engineering costs rounded to 0 decimal places		$enter a dollar amount for elite Total MOH rounded to 0 decimal places

Compare the overhead calculated in part a to that calculated in part b. Which allocation method (traditional or ABC) most likely results in a better estimate of product cost? select an option Traditional methodABC method