Addison Company has two products: A and B. Annual production and sales are 800 units of Product A and 700 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 0.2 direct labor hours per unit and Product B requires 0.6 direct labor hours per unit. The total estimated overhead for next period is $71,286.
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:
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Expected Activity
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Activity Cost Pool
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Estimated Overhead Costs
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Product A
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Product B
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Total
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Activity 1..............
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$20,272
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300
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500
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800
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Activity 2..............
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29,380
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800
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500
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1,300
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General Factory.....
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21,634
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160
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420
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580
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Total......................
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$71,286
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(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor hours.)
1. The predetermined overhead rate under the traditional costing system is closest to:
A) $25.34
B) $22.60
C) $37.30
D) $122.91
2. The overhead cost per unit of Product B under the traditional costing system is closest to:
A) $22.38
B) $13.56
C) $73.74
D) $15.20
3. The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-based costing system is closest to:
A) $22.60
B) $54.84
C) $58.76
D) $36.73
4. The overhead cost per unit of Product B under the activity-based costing system is closest to:
A) $73.74
B) $56.62
C) $22.38
D) $47.52