Question
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
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