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Addy Company makes two products: Product A and Product B. Annual production and sales are 1,700 units of Product A and 1,100 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 0.3 direct labor-hours per unit and Product B requires 0.6 direct labor-hours per unit. The total estimated overhead for next period is $98,785.

 

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:
                                                                 Estimated   Expected Activity        

                                                                 Overhead   Product

                Activity 1                       Costs         Product A         B                 Total

   Activity 1                                   $30,528         1,000          600              1,600

   Activity 2                                    17,385          1,700          200              1,900

   General Factory                          50,872             510          660               1170

    Total                                        $98,785


(Note: The General Factory activity cost pools 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)            $51.99

b)            $10.23

c)            $86.93

d)            $9.15

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