Acton Company has two products: A and B. The annual productionand sales of Produ

Question

Acton Company has two products: A and B. The annual productionand sales of Product A is 800 units and of Product B is 500 units.The company has traditionally used direct labor-hours as the basisfor applying all manufacturing overhead to products. Product Arequires 0.3 direct labor hours per unit and Product B requires 0.2direct labor hours per unit. The total estimated overhead for nextperiod is $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

Activity Cost Pool

Estimated Overhead Cost

Expected Activity

Explanation / Answer

$92023 / 340

$270.66

$340

$270.66 X 0.2

$54.13

Answer is (a.) $54.13 calculation: under traditionalmethod Step1 Calculate overhead per direct labordollar   = Total overhead costs / Total direct labordollars                       =

$92023 / 340

                      =

$270.66

Total direct labor dollars Product A 0.3 X 800 = $240 Product B 0.2 X 500 = $100 Total direct labor dollars

$340

Step2 Overhead per unit for ProductB               = Overhead cost per direct labor dollars X Per unitdirect labor dollars                       =

$270.66 X 0.2

                      =

$54.13

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