Acton Company has two products: A and B. The annual production andsales of Produ

Question

Acton Company has two products: A and B. The annual production andsales of Product A is 800 units and of Product B is 500 units. Thecompany has traditionally used direct labor-hours as the basis forapplying all manufacturing overhead to products. Product A requires0.3 direct labor hours per unit and Product B requires 0.2 directlabor hours per unit. The total estimated overhead for next periodis $92,023. The company is considering switching to anactivity-based costing system for the purpose of computing unitproduct costs for external reports. The new activity-based costingsystem would have three overhead activity cost pools--Activity 1,Activity 2, and General Factory--with estimated overhead costs andexpected activity as follows: Activity Cost Pool Estimated Overhead Cost Expected Activity Product A Product B Total Activity 1 $14,487 500 600 1,100 Activity 2 $64,800 2,500 500 3,000 General Factory $12,736 240 100 340 Total $92,023

The predetermined overhead rate under the traditional costingsystem is closest to: (Points: 3)
      $37.46
       $21.60
       $13.17
       $270.66

Activity Cost Pool Estimated Overhead Cost Expected Activity Product A Product B Total Activity 1 $14,487 500 600 1,100 Activity 2 $64,800 2,500 500 3,000 General Factory $12,736 240 100 340 Total $92,023 Activity Cost Pool Estimated Overhead Cost Expected Activity

Explanation / Answer

Answer is $ 270.66 Product A requires 0.3 Direct labor hours/unit Product B requires 0.2 Direct labor hours/unit Total DL hours: A - 800* 0.3 = 240 B- 500 * 0.2 = 100 Total DL hrs     340 Total manufacturing Overhead for the year estimated to be $92,023. Predetermined overhead rate based upon labor hrs is    O/H rate = 92,093                                      340                 = $ 270.66

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