Dumbledore Corporation has two products: A and B. The annual production and sale

Question

Dumbledore Corporation has two products: A and B. The annual production and sales of Product A is 2,700 units and of Product B is 2,100 units. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.5 direct labor-hours per unit and Product B requires 0.8 direct labor-hours per unit. The total estimated overhead for next period is $109,875.
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:

56,586      

$109,875      

The predetermined overhead rate under the traditional costing system is closest to:

$36.26

$18.68

$4.96

$9.43

Dumbledore Corporation has two products: A and B. The annual production and sales of Product A is 2,700 units and of Product B is 2,100 units. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.5 direct labor-hours per unit and Product B requires 0.8 direct labor-hours per unit. The total estimated overhead for next period is $109,875.
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:

Explanation / Answer

Predetermine overhead rate = Estimated overhead/Estimated labour hour

Estimated labour hour = (2700*.50+2100*.80) = 3030 Direct labour hour

Predetermine overhead rate = 109875/3030 = 36.26 per labour hour

so answer is a) $36.26

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