Reference no: EM132527165

Adelberg Company has two products: A and B. The annual production and sales of Product A is 2,350 units and of Product B is 1,750 units. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.4 direct labor-hours per unit and Product B requires 0.7 direct labor-hours per unit. The total estimated overhead for next period is $106,000.

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 Order Size--with estimated overhead costs and expected activity as follows:

Estimated  Expected Activity  Activity Cost Pools         Overhead Costs

                        Product A           Product B           Total

Activity 1         $32,754             1,650            1,250                2,900

Activity 2         18,656                 2,350                850           3,200

Order Size          54,590                940                1,225             2,165

Total                                                                                $106,000

(Note: The Order Size activity cost pool's costs are allocated on the basis of direct labor-hours.)

Question 1: The overhead cost per unit of Product B under the traditional costing system is closest to: (Round your intermediate calculations to 2 decimal places.)

Multiple Choice

Option 1: $19.85

Option 2: $5.83

Option 3: $7.94

Option 4: $34.27