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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.

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