Question
Addy Company has two products: A and B. The annual production and sales of Product A is 1,850 units and of Product B is 1,250
Addy Company has two products: A and B. The annual production and sales of Product A is 1,850 units and of Product B is 1,250 units. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.3 direct labor-hours per unit and Product B requires 0.6 direct labor-hours per unit. The total estimated overhead for next period is $100,500. 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:
Total | Estimated Overhead Costs | Expected Activity | |||
Product A | Product B | Total | |||
Activity 1 | $31,055 | 1,150 | 750 | 1,900 | |
Activity 2 | 17,688 | 1,850 | 350 | 2,200 | |
General Factory | 51,757 | 555 | 750 | 1,305 | |
Total | $100,500 |
(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor-hours.) |
The overhead cost per unit of Product B under the traditional costing system is closest to: |
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