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Markham Company makes two products: Basic Product and Deluxe Product. Annual production and sales are 2,000 units of Basic Product and 1,300 units of Deluxe

Markham Company makes two products: Basic Product and Deluxe Product. Annual production and sales are 2,000 units of Basic Product and 1,300 units of Deluxe Product. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Basic Product requires 0.4 direct labor hours per unit and Deluxe Product requires 0.8 direct labor hours per unit. The total estimated overhead for next period is $99,135.

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 poolsActivity 1, Activity 2, and General Factorywith estimated overhead costs and expected activity as follows:

Estimated Expected Activity
Activity Cost Pool Overhead Costs Basic Product Deluxe Product Total
Activity 1 $ 30,612 1,100 700 1,800
Activity 2 17,490 1,700 450 2,150
General Factory 51,033 800 1,040 1,840
Total $ 99,135

(Note: The General Factory costs are allocated on the basis of direct labor hours.)

The predetermined overhead rate under the traditional costing system is closest to:

$17.01.

$27.74.

$8.13.

$53.88.

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