Question
Addy Company makes two products: Product A and Product B. Annual production and sales are 1,400 units of Product A and 1,000 units of Product
Addy Company makes two products: Product A and Product B. Annual production and sales are 1,400 units of Product A and 1,000 units of Product B. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.40 direct labor hours per unit and Product B requires 0.50 direct labor hours per unit. The total estimated overhead for next period is $87,064. |
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: |
|
|
| Expected Activity | |||||
|
|
| ||||||
Activity Cost Pool |
| Estimated Overhead Costs |
| Product A |
| Product B |
| Total |
Activity 1 |
| $30,800 |
| 1,500 |
| 500 |
| 2,000 |
Activity 2 |
| 13,440 |
| 1,400 |
| 200 |
| 1,600 |
General Factory |
| 42,824 |
| 420 |
| 600 |
| 1,020 |
|
|
|
|
|
|
| ||
Total |
| $87,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 activity-based costing system is closest to: |
$37.49.
$32.86.
$34.57.
$41.07.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started