Reference no: EM13646319

Addison Company has two products: A and B. Annual production and sales are 800 units of Product A and 700 units of Product B. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.2 direct labor hours per unit and Product B requires 0.6 direct labor hours per unit. The total estimated overhead for next period is $71,286.

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:

			Expected Activity
	Activity Cost Pool	Estimated Overhead Costs	Product A	Product B	Total
	Activity 1..............	$20,272	300	500	800
	Activity 2..............	29,380	800	500	1,300
	General Factory.....	21,634	160	420	580
	Total......................	$71,286

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

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

A) $25.34

B) $22.60

C) $37.30

D) $122.91

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

A) $22.38

B) $13.56

C) $73.74

D) $15.20

3.  The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-based costing system is closest to:

A) $22.60

B) $54.84

C) $58.76

D) $36.73

4.  The overhead cost per unit of Product B under the activity-based costing system is closest to:

A) $73.74

B) $56.62

C) $22.38

D) $47.52