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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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