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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 1,400 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 1,400 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 $99,735.

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 $ 30,756 1,600 900 2,500
Activity 2 17,670 1,800 400 2,200
General Factory 51,309 800 1,120 1,920
Total $ 99,735

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

The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-based costing system is closest to:

A) $51.95

B) $8.84

C) $8.03

D) $45.33

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