Traditional single-rate costing system


Problem:

Acton Company has two products: A and B. The annual production and sales of Product A is 800 units and of Product B is 500 units. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. 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:

Activity    Overhead    Cost Driver Units*
Cost Pool    Cost Driver    Costs    Product A    Product B    Total

Activity 1 Customer Orders      $14,500       500    600    1,100
Activity 2    Machine Hrs           $64,800    1,500    500    2,000
General Fact.Direct Labor Hrs   $22,700    1,800    100    1,900
Total                                     $102,000

Assume that the actual number of cost driver units consumed is the same as the estimated number.

(a). The predetermined overhead rate under the traditional single-rate costing system is closest to:

(b). The overhead cost per unit of Product B under the traditional costing system is closest to:

(c). The amount of Activity 1 cost per unit of Product B under the activity based costing system is closest to:

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Accounting Basics: Traditional single-rate costing system
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