Question
Adams Company has two products: A and B. The annual production and sales of Product A is 1,950 units and of Product B is 1,350
Adams Company has two products: A and B. The annual production and sales of Product A is 1,950 units and of Product B is 1,350 units. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.5 direct labor-hours per unit and Product B requires 0.8 direct labor-hours per unit. The total estimated overhead for next period is $101,600. The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools--Activity 1, Activity 2, and General Factory--with estimated overhead costs and expected activity as follows: |
Activities | Estimated Overhead cost | Expected Activity | |||
Product A | Product B | Total | |||
Activity 1 | $31,394 | 1,250 | 850 | 2,100 | |
Activity 2 | 17,882 | 1,950 | 450 | 2,400 | |
General Factory | 52,324 | 975 | 1,080 | 2,055 | |
Total | $101,600 |
(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor-hours.) The predetermined overhead rate under the traditional costing system is closest to:
$14.95
$49.44
$25.46
$7.45
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