Draco Corp. has two products: A and B. The annual production and sales of Product A is 2,350 units and of Product B is 1,750
Draco Corp. has two products: A and B. The annual production and sales of Product A is 2,350 units and of Product B is 1,750 units. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.4 direct labor-hours per unit and Product B requires 0.7 direct labor-hours per unit. The total estimated overhead for next period is $106,000. 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 Cost Pools | Estimated Overhead Costs | Expected Activity | |||
Product A | Product B | Total | |||
Activity 1 | $32,754 | 1,650 | 1,250 | 2,900 | |
Activity 2 | 18,656 | 2,350 | 850 | 3,200 | |
General Factory | 54,590 | 1,225 | 1,440 | 2,665 | |
Total | $106,000 |
The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-based costing system is closest to: |
$7.94
$33.13
$40.96
$5.83
Draco Corp. has two products: A and B. The annual production and sales of Product A is 2,350 units and of Product B is 1,750 units. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.4 direct labor-hours per unit and Product B requires 0.7 direct labor-hours per unit. The total estimated overhead for next period is $106,000. 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 Cost Pools | Estimated Overhead Costs | Expected Activity | |||
Product A | Product B | Total | |||
Activity 1 | $32,754 | 1,650 | 1,250 | 2,900 | |
Activity 2 | 18,656 | 2,350 | 850 | 3,200 | |
General Factory | 54,590 | 1,225 | 1,440 | 2,665 | |
Total | $106,000 |
The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-based costing system is closest to: |
$7.94
$33.13
$40.96
$5.83
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